I just finished a series of meetings with investors in Australia. They are a beleaguered lot. Between the collapsing commodity bubble and rising housing prices much due to Chinese capital many Australians are feeling squeezed. I was asked about capital flight, the property bubble, and whether China is facing a hard landing.

China’s property bubble has sagged in the big cities like Beijing and Shanghai – but it is on the verge of popping completely in the country’s heartland. After spending a week in Sichuan Province, it is clear that land sales, prices and transactions are all declining in double digits.

Centralizing Power in Beijing I find myself disagreeing with much of this article by Bill Overholt (ex investment banking economist now at Harvard) entitled “The Politics of China’s Anti-corruption campaign”. It adheres to the conventional wisdom of centralization of power economically and politically that may be more honored in the breach than in the observance. […]

The global markets are blaming China as the instigator for a global slowdown. As the New York Times noted, “The immediate trigger to the outburst of global volatility was China, where the sharp drop in stocks Monday continued a rout that has been underway — with periodic pauses thanks to government interventions — all summer.” We are usually not one to praise Chinese economic sagacity. However, We believe there is a widespread misinterpretation of Chinese policy over the past few months that has created this global crisis in confidence. Apart from a few notable missteps, China has continued to administer its economy with the same tools as before and in some cases has even made modest progress in reform.

There clearly is a conflict between different groups over the devaluation of the Renminbi. To get to the punchline: I see this as a progressive and aggressive move by Zhou Xiaochuan at the PBOC. However, I doubt the PBOC was very clear about the impact of the devaluation on the domestic economy or global sentiment. The pushback was much larger than they had anticipated. Still, it was a classic Chinese policy: internationalization as a tool to handle domestic problems. This was true with the WTO entry under Zhu Rongji, which led to reform of the state owned firms. Zhou Xiaochuan is among the most cosmopolitan of senior policy makers (USA PhD) and this is his style.