[Staying with China for a moment …]
Good decision-making requires good, timely information. Anything that hinders the flow of accurate and timely information, or which distorts that information, threatens the quality of decision-making, and thus degrades the efficiency and effectiveness of the ways in which we, both as individuals and as a society, use our scarce resources.
The importance and value of accurate and timely information is well-known in financial markets. Companies, fund managers and other financial agents are required by law to provide investors with such information, on pain of penalties for failure to comply. Movements in financial and securities markets are driven by information flows, and thus their efficiency is partly a result of the efficiency of these flows.
So it was interesting to read an article in The Australian Financial Review for June 27-28 hinting that the Chinese government is discouraging financial houses from sponsoring the Markit PMI measure of purchasing managers’ activity:
For those on wanting [sic – editing at the AFR really is junk these days] to understand China there is one economic statistic more closely watched than any other. It’s the flash purchasing managers’ index – or PMI – which is released in the last week of every month.
The index claims to be the “earliest available indicator” of activity in China’s giant manufacturing sector and it moves markets from Shanghai to Sydney, while providing a talking point for pundits.
For the last five years the index has been sponsored by HSBC, giving the bank an easy stream of publicity and allowing it to brand itself as an authority on the state of the Chinese economy.
But HSBC’s sponsorship will finish at the end of this month after the bank did not renew its global agreement with the survey’s private sector compiler, Markit. A spokeswoman for HSBC confirmed its exit to AFR Weekend and said the bank would refocus its marketing dollars toward other projects.
She denied there was anything more to it than the bank moving on after “five successful years”.
This would suggest other big foreign banks operating in China will jump at the chance to sponsor the survey and have their name splashed all over the media each month.
Not so, according to one person who was approached to take on the sponsorship.
While attracted by the branding opportunity, his organisation declined as it was “too risky” in the current climate.
“If you are a sizeable bank that wants to do more business in China you don’t want to make parts of the Chinese government angry,” says the person, who asked not to be named.
“Sponsoring the survey is likely to affect your future business expansion in China.”
The issue is that the HSBC/Markit PMI has been consistently weaker or more negative over the last year than the official PMI released by China’s National Bureau of Statistics. In a country where the official narrative on everything from the economy to the weather is tightly controlled, this is a problem as it reinforces the view that China’s official data can’t be trusted.
Putting your name to such a high-profile survey therefore makes you a target for China’s regulators, according to the source.
“We don’t want any extra attention,” he says.
A secondary issue is the risk the information may leak internally and be used by traders at the bank to profit.
After the LIBOR rigging scandals of recent years that would provide another nasty regulatory headache and potentially open the bank up to litigation and fines.
But the far bigger risk in taking on such a sponsorship is the Chinese government and its obsession with controlling information, particularly anything which might indicate the economy is weaker than the official data suggests. Beijing already has a long track record in stopping such information being made public. According to one economist who tracks data releases closely, China’s National Bureau of Statistics stopped publishing detailed breakdowns on the production of some building materials as the housing market started to sour last year.
This meant economists found it more difficult to cross-check official statistics on property construction. A similar tactic was used in the auto sector.
When some began questioning official car sales figure by pointing to a drop in registrations, the government stopped reporting the latter. The lack of transparency on official statistics is paired with tight control of the local media.
On Tuesday, when the Shanhai Composite index was down 5 per cent at lunchtime, Chiense propaganda authorities directed local journalists to minimise their coverage. If they did report on the dramatic morning session they should emphasis [sic] the “positive” aspects of the sharemarket boom, not dwell on the negatives, according to a message seen by AFR Weekend.
Another issue is the collection of what is often deemed sensitive information in China. This is a very large grey area and has seen the likes of BHP Billiton put strong internal controls in place when it sends research teams into the field in China …
This is the environment facing Markit as it prepares to announce a new sponsor for its China PMI and others in the region …
The new sponsorship deal ensures the China PMI will survive as a closely watched but, more importantly, independent data point for those trying to make sense of the world’s second biggest economy.
In one sense, there’s not much that is new here. We know that the people running the Chinese government are bullies who like getting their way and who don’t like having people tell a story contrary to the one that they are running. So they don’t like a primary source of information independent of their control – really, the surprising thing is that they let the Markit PMI exist at all.
But in another sense this really is new information. Because what it is telling us is that the Chinese government is worried about the gradual but progressive slowing of the Chinese economy. Now this really is big news. Because they’ve bet the house on China’s continuing to grow strongly, and they have thrown everything at this outcome, and now it’s turning against them and they don’t have many more shots left in the locker. Throwing their weight around in the market for independent information is just the start, I think, of what they will do in order to make things keep looking rosy in their patch, even as those things turn to mush beneath the blanket of propaganda.