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Market Analysis September 07, 2007
China Raises Its Reserve Requirements ¡ª So What? by Enzio von Pfeil
 Today's Hong Kong headlines were ablaze with the Central Bank having raised the banks' reserve requirements by a sweltering 0.5%. What should the investor make of this? Sell - or buy?
For a long time we have propagated the wisdom that "we don't see things as they are, but as we are". Thus, Westerners with little experience in China will take such news as "tightening" talk - and exit China shares.
We have a different view. Having studied under von Hayek, and thus being influenced heavily by Sir Karl Popper, one of my mainstays is to always look at the assumption of the argument before examining the argument itself.
The assumptions made by people who fear that China is "tightening" have to be inter alia that
China has a functioning economy in which interest rates provide the right signals
China has banks that are independent of politics
Beijing is in charge of China.
These would be assumptions made by people not dealing with China close-up. This is the bit about seeing things as "we" (Westerners") are.
But these assumptions do not apply to China:
We know that her capitalist economy is young, probably akin to that of Dickensian England;
China's banks are driven by politics, and
China's provinces and townships dictate local events.
Thus, we remain China bulls.
(Source: SeekingAlpha)
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February 03, 2007