Are most of us looking in the wrong place? The greatest economic and financial concentration has been on Europe, on Greece, on the so-called PIIGS, and on the European decision to attack national deficits by significant reductions in state spending.

But, if there is genuine concern about the possibility that the world will slip into another recession – the dreaded double dip predicted so long ago by Nouriel Roubini (Dr Doom) – perhaps we should instead be looking at China. Because, if China wobbles it will spell huge trouble.

During the first week of July China’s benchmark stock index plunged to its worst loss in a year. The Shanghai Composite Index fell 6.7% and over in America the S&P 500 index recorded its ninth day of declines.

As long ago as May predictions began to surface about the dangers attendant on China’s overheated real estate market. James Chanos, who heads the $6bn Kynikos hedge fund, called it a “world-class property bubble.” It is salutary to note the comment by Harvard University professor and former chief economist of the IMF Kenneth Rogoff: “In my work on the history of financial crises, we find that debt-fuelled real estate explosions are a frequent precursor to financial crisis.”

Talking to a conference for Asia investors, Rogoff said: “You’re starting to see that collapse in property and it’s going to hit the banking system. They have a lot of tools and some very competent management, but it’s not easy.”

So, what’s been going on? First, the definition of a bubble: put simply it’s where an asset is inflated rapidly where people have been borrowing to buy the asset but where the asset itself doesn’t generate sufficient cash to service the debt, and where all the chips are bet on the asset’s increasing value.

China’s problem seems to be compounded by the fact that between 50% and 60% of its GDP is in construction and too much of that capability has been devoted to real estate instead of to infrastructure. Its government pumped $500bn into the economy last year to provide stimulus and Chanos claims that a large percentage of this ended up in real estate. But Beijing is also anxious to cool the economy – its Treasury officials don’t want to have to deal with overheating as well as asset bubbles – which explains why new export taxes are being introduced and why bank lending is being ratcheted down.

There are some sums, however, that just don’t add up. A typical Chinese condo is, apparently, about 1 100 square feet and costs between $100 000 and $150 000. But a typical Chinese family with two income earners in their 30s will bring home between $7 000 and $8 000 a year. This is lousy arithmetic. It is clear that the condos aren’t being built for the average Chinese family. So who are they being built for? Back in 2005, the Chinese government ordered up an entire city in Inner Mongolia called Ordos. It’s there, streets, power, houses, shops etc. But no one lives there. Ho, hum…

Not everyone agrees that China’s property boom is a bubble. Morgan Stanley chairman Stephen Roach reckons the Chinese property boom won’t implode. He thinks increasing numbers of rural Chinese will continue to migrate to the cities.

Well, there it is, cause to be sufficiently concerned to take the Chinese property market seriously and to keep watching it.


MIXED SIGNALS

Some time ago, I broke the story (Torque, April 26) that the new minister for communications, Siphiwe Nyanda, was reviewing the policy adopted for the intended switchover from analogue to digital television broadcasting.

Back in 1997 SADIBA, the Southern African Digital Broadcasting Association was formed and it was SADIBA that investigated the best available international standards for the switchover. In 2002, it recommended that the European Digital Video Broadcasting Standard should be adopted. That recommendation was accepted and, after the usual bureaucratic rigmarole, the Ministry accepted it as official Government policy and published this in the Government Gazette of September 8, 2008.

The problem is that South Africans have been using TV sets that only accept analogue transmissions. No one can expect owners to chuck their sets away and buy new ones. So a system needs to be created that enables analogue TV sets to accept digital transmissions – that’s where set-top boxes come in. Local manufacturers have been busy investing the money required to tool up for this and to handle the research necessary for design parameters and the like. Just to complicate matters, a number of SADC countries followed our lead and have already started the migration process to the European standard. Nor are they the only ones – a raft of countries across East and West Africa have chosen the European system.

When rumours began to circulate that the Ministry, under its new leader, was going to reconsider the policy decision taken in 2008, the concern was palpable – and understandably angry. The alternative, for which lobbying was under way, was a Japanese standard. Interestingly, this campaign appears to have had its origins in Brazil which chose the Japanese system. But from information available it seems that, despite an early start as far back as 2007, Brazil’s experience has not only been slow but it has had to set back its target times by several years.

What’s more, manufacturers of decoders have had a tough time selling their products in Brazil. So it becomes obvious what the Brazilians want to achieve. They want to involve SA because that will mean the cost of the set-tops will come down with a bigger market.

It’s nonsense of course. We shouldn’t be playing footsie at this stage with those whose vested interests lie in supporting their own decision which seems, on the face of it, not to have been very clever.

Now I hear that Nyanda has come down on his unfortunate director-general, Mamodupi Mohlala. He is clearly responding to waves of criticism that the re-examination of the 2008 policy has evoked. Serve him and others in his Ministry right – this endless parade of meetings, examinations and reviews of policies does us no good. Why don’t they just get on with the job at hand?