What's the Mandarin for Property Crash?

I grow bored of Portergate, and so my internet browsing has led me further afield, to examine China and the continuing economic miracle that rolls on there in apparent defiance of the global recession. Obviously, given the swamp of debt in which much of the rest of the world is mired, there is much speculation that surely the Chinese economy will soon come crashing down, with many doom laden predictions being aimed at China's sky-rocketing property market.

I was unsure of my own view on this topic, until I read this post on the Wall Street Journal China Real Time Report. True, it is scant in terms of details or figures, and the article does not even suggest that the Chinese property market might crash. However, the following two lines regarding leading developer Ren Zhiqiang have convinced me that China will soon experience a tumble in property prices:

"(Ren) once famously said anyone who couldn’t afford a house in the city should go back to the countryside"

And, after a protestor threw a shoe (I mean really, who throws a shoe?) at Ren during a speech he was giving to a real estate conference, "Ren seemed to embrace the attack. Cracking a smile after the first salvo missed its mark, he went on to insult the shoe-thrower as someone probably frustrated at being too poor to buy a house."

Now, supposedly professional economists (you know, those ones with "degrees", and who have carried out "research") will tell you that you measure the likelihood of property bubbles by looking at multiples of average income, price rises year on year, and over-active lending on the part of banks. You know, numbery sort of things.

Not me. I measure the likelihood of a bubble bursting using the patented "Aitor McDonagh Mean Hubris Quotient". And let me tell you, with Ren's comments, we are going off the scale.

Basically, measuring Ren's comments against our standard measures taken from Ireland, we have long passed the 100 MicroBerties on the smugness scale (equivalent to when Bertie Ahern professed that anyone who doubted Ireland's miracle property market was "Sitting on the sidelines, cribbing and moaning is a lost opportunity. I don't know how people who engage in that don't commit suicide")

With Ren's remarks, China's property market is clearly reaching the GigaSheehy mark, where the level of empty, air-headed hubris is equivalent to when the former head of Allied Irish Bank, Eugene Sheehy said "We'd rather die than raise equity (from the State)". You know, shortly before AIB needed €3.5 billion of taxpayer's money?

Judging by my highly scientific (and don't forget, patented) scale, China is due a bit of a property crash. So surely, the Middle Kingdom will end up as depressed and sullen as Ireland is today? Not quite - let's not forget that many countries have property bubbles, but as in most cases, China did not focus almost exclusively on property to the detriment of all else. That was an Irish speciality. China will continue to tick away, exporting huge quantities to the West, importing luxury goods, and developing their own high-end, quality brands. Some of the Chinese middle classes, and some of the super-rich (like Mr. Ren), will however become too familiar with the words "negative equity".

Leaf in the stream

I have a newsflash for you Ireland: we are not at the centre of the world. I know, I was shocked too! Apparently, that bowl of shamrocks Biffo gave Obama last St. Patrick's Day doesn't even have a special place of honour beside the presidential bed; nor does Obama give it a little pat each night before falling asleep, whispering "I love you Ireland".

Having adjusted to the fact that Ireland is not the nation on everyone's lips, and that indeed many Americans don't know where we are, and that many Brits think we still belong to them, I realise now that such anonymity on the global stage is no bad thing. Sometimes. After all, up till now our bluffing regarding the state of our financial affairs has been accepted (hook, line and sinker one might say) by the international press and, more importantly, by the bond markets. Its hardly surprising really; after all, outside of Ireland there is noone analysing the Irish economy as a full-time job. At best, our financial announcements get a quarter of an hour on the desk of the Moody's analyst who handles the smaller Euro economies, snugly tucked between a report by the Maltese central bank, and an article on the financial situation in Slovenia.

Unsurprisingly then, our bluster about "taking the tough decisions" has been accepted on face value, as no one has had the time or inclination to look behind our words. If the general information available on Ireland was positive (given the circumstances) it was broadly accepted internationally that Ireland was on the road to recovery.

However, with more negative reports emanating from our shores - as they now are - we find ourselves in a pickle. No one is taking the time to see if things in Ireland are truly as bad as the bond markets think, and consequently, it is generally accepted that Ireland is in trouble. This leads to a vicious downgrading spiral as Irish debt becomes more expensive to fund because everyone knows that Irish debt is expensive to fund. And because it is accepted that Ireland's economy has some serious structural flaws, even if we do address things, no one will believe us!

Nothing better sums up how general market ignorance about Ireland has turned from an opportunity to a threat like the recent column by Ambrose Evans-Pritchard in the Daily Telegraph. An expert on all things financial, AEP notes how Anglo-Irish Bank is a serious threat to Ireland's long-term financial stability. He notes that the €25 billion provided by the state to bail-out the banks has almost all gone to Anglo, who he refers to throughout the article as AIB (Anglo-Irish Bank), generally painting the bank in a bad light.

Only problem is that AIB is actually Allied Irish Bank which, unlike Anglo, has not been nationalised, and is still quoted on the stock market. Whether AEP's switcheroo has had an impact on AIB's share price is hard to say, as they were already in the toilet has helped push AIB's shares even further into the toilet is hard to tell. However, if even one of the sharpest financial commentators around can only allocate a cursory level of research to Ireland's financial situation, what chance have we of getting a fair hearing from the big cats of the global markets jungle? EDIT - Central Bank Governor Patrick Honohan notes commentators confusion regarding AIB/Anglo an issue.