Andy Xie isn’t sold on the V-shaped recovery. Sure, he sees a lot of V’s in the data, but they all look vulnerable to collapsing once stimulus is pulled back from nations like China.
Are we in the midst of a V-shaped recovery following the economic collapse that began in the second half 2008?
The answer is no. I think the current recovery is merely based on government stimulus and low-base effect. And given the amount of stimulus spending, this is not a strong recovery. More importantly, structural problems exposed by the financial crisis were merely covered up, not resolved, by stimulus spending. This is why the recovery is not sustainable.
Since stimulus will eventually lead to inflation, interest rates will have to be raised. That will lead to another dip in the global economy. I expect this second dip in 2012, which means we are en route to a W-shaped economic phenomenon, not a V-shaped recovery.
The Chinese auto industry provides a nice example of a clearly unsustainable ‘V’:
Let’s look at China’s auto industry to prove the point. Everyone says the industry is booming. Meanwhile, automakers are depressed everywhere else around the world. How should we read the difference? What facts are true and sustainable, true but not sustainable, or false?
It’s true that auto demand is booming in China. This is line with the global industry’s trend. Whenever a country’s per capita income rises above US$ 6,000, auto demand tends to take off. And that income level has been surpassed in many Chinese cities. But is this growth rate sustainable? It is not. China’s auto market is new, which means many consumers are buying their first car, creating a spike in demand. Demand for replacement vehicles will be the market’s next development, and that will be a long time coming.
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