The year of the pig, which started on February 18, is meant to bring great fortune. This is especially so this year, because it’s a golden pig, the first in 60 years, according to astrologers. But if the past few weeks are anything to go by, good fortune might not lie in the stars.
On February 27 the Shanghai index recorded its biggest singleday plunge in a decade, fueled by whispers of a possible government crackdown on stock market speculation. The subsequent chain reaction spread to markets worldwide, with the Dow diving more than 500 points before pulling back. Such intense spillover would probably not have happened five years ago, and testifies to the ever-growing importance China – now the world’s fourth largest economy – has on the world stage.
This spotlight, of course, brings into sharper focus many of the problems and flaws in the Chinese system. Exports have snowballed but consumption has remained at the same level; investment has surged but foreign and domestic capital have inflated stocks to unsustainable levels. The everincreasing wealth gap between rural and urban is leading to signs of social unrest, and the government is coming under pressure over its deteriorating environment and questionable relationships with corrupt foreign governments.
Derek Scissors, editor of Washington, DC-based China Watch, an intelligence and forecasting service, lists further problems. ‘Regulation this year will be challenging, including a tax hike on multinationals, an anti-monopoly law that appears to be tilted against foreign firms, and a draft labor law that will be especially difficult for multinationals to handle,’ he comments.
All of this, coupled with this year’s 17th Party Congress and next year’s Olympics, means the key word for the Chinese government in 2007 needs to be ‘stability’. Meanwhile, the list of new IPOs keeps growing: 157 last year compared with 94 in 2005. Along with the listings boom, China has to prepare for a baby boom, too, though at least those born in the year of the pig will supposedly be polite, honest, hardworking and loyal citizens, not to mention lucky with money and business.
It doesn’t seem like luck that China needs, however. Nor is it ambition. Petra Nix, a China expert at Munich-based Kirchhoff Consult, has had many recent requests from Chinese clients for specific overseas investments. She predicts a lot of cross-border transactions in 2007. ‘This is fueled by explicit political support to go global,’ she says, adding that between 2003 and 2006, acquisitions involving a Chinese principal and a European target have been growing by almost 38 percent a year.
Predictions, however, must be balanced with the knowledge that much is in the control of the Chinese authorities. If the right balance is achieved, this could be another lucky year for China – with or without the pig.
