Losing The Propaganda Battle

WSJ: China Presses Economists to Brighten Their Outlooks

The stepped-up censorship, many inside and outside the ruling Communist Party say, represents an effort by China’s leadership to quell growing concerns about the country’s economic prospects as it experiences a prolonged slowdown in growth. As more citizens try to take money out of the country, officials say, regulators and censors are trying to foster an environment of what party officials have dubbed “zhengnengliang,” or “positive energy.”

In the past, Chinese authorities have targeted mainly political dissidents while commentary about the economy and reporting on business has been left relatively unfettered in China in a tacit acknowledgment that a freer flow of information serves economic vitality.

You have to try hard to get censored in China unless they're on a character purge (such as during the Bo Xilai incident). It's virtually impossible to get censored on economics. At least it used to be. This reads more like social pressure to me, the preferred method of censorship in the United States.

Christopher Balding sees more censorship, but much of it still voluntary (such as what Hollywood is doing). Here's Balding:

Self censoring of economic and financial reporting in business community is wide spread. I was told point blank by a senior executive from a major financial institution that they no longer publish any report that is remotely critical of the Chinese economy or markets.

Self-censorship is nothing new though. One of the reasons I started blogging more, aside from language practice, was because the Chinese were saying such negative things about the economy in blogs and in the press. To this point, they've continued doing so and it is a stark contrast to a lot of positive reporting in the foreign media, although that changed a lot since 2014.

As for the effectiveness of it, opinion is crafted by what you are allowed to say, and what you are allowed to say affects what you think. As noted in the WSJ piece, one firm stopped doing research into the debt-for-equity swaps because they weren't going to be allowed to report anything negative. If you can't write about it or discuss it, eventually you stop thinking about it. (There is a reason many bloggers and comment sections and Twitter accounts are anonymous, and why those who want to shut down debate demand real names.)

That said, reality can't be controlled. The economy is what it is, and if lies are told about reality, eventually reality intrudes. Or maybe they simply stop reporting it: China statistics bureau halts some commodities data amid probe

China has suspended the release of output data for several key commodities amid a crackdown on the illegal sale of state statistics by government officials, raising further concerns about transparency in the world's second-largest economy.

With Chinese economic growth at a 25-year low, the lack of such data makes it increasingly difficult for economists to gauge the strength of local demand as Beijing tries to avert a faster slowdown.

Key monthly output numbers for several oil and metal products over the first quarter have still not been published, and the National Bureau of Statistics (NBS) has also failed to release regional data for products like coal, steel and electricity since the turn of the year.

Bloomberg: Pray That China's Faking It

If China's demand for construction materials is really increasing at the rate implied by futures prices, it can only be because a lot of building activity is underway. While one widely watched industrial activity measure weakened Tuesday, that picture is still entirely consistent with first-quarter economic data showing rising real estate and construction activity, driven by a worrying increase in debt levels.

Outsiders who've experienced the bursting of two major asset price bubbles over the past few decades should think hard about the one they'd prefer to see take place in China.

If futures markets have lost touch with reality, we're in for a replay of the 2000-2001 dotcom crash. The main players who will lose out will be professional investors who've hedged their exposures, and amateur traders who will likely cash out before they go too deep underwater.

The alternative is that futures markets have read China's economy right, and the bubble being fueled by all that debt is in bricks and mortar and the borrowings of unproductive state-owned enterprises.

I often write about socionomics here, which is based off of Elliot Wave Theory. Whether you think there's any merit to it or not, one interesting thing about EWT is that according to the theory, it doesn't work in markets dominated by professionals. The wave patterns don't develop because professionals act rationally (think of a futures market with grain farmers, bread companies, professional market makers, with a few speculators tossed in). EWT works best in highly emotional markets with lots of amateurs (which, I'd argue, is why the ChiNext analog lined up so neatly with the Nasdaq 2000 bubble).

When information is restricted, people fill the void with rumors and gut feelings, and those are influenced by emotion. Restricting information works great in bull markets because people fill the gaps with optimism. When there is a bear market, people will fill the gaps with pessimism. The markets end up being more volatile and emotionally driven because the professionals either become more emotional as well, or trade the emotional waves, or exit the market and leave it to the amateurs. In the end, it will accomplish nothing and lead to greater losses than would otherwise have been the case, while damaging the credibility of everyone who goes along with it.