Tuesday, May 05, 2009

The US and China now equally unreliable on financial information

A few days ago, China announced new rules for foreign providers of financial information.

According to these, such companies as Bloomberg, Dow Jones and Thomson Reuters, must avoid furnishing domestic clients with information that could destabilize markets or stir up social tension.

As it is nowadays impossible to provide any information to non-Chinese clients without at least taking the risk of some of that information "leaking" to Chinese clients, this means that ALL information coming out of such informaiton providers will be self-censored if they wish to do any business in China. That, in turn, means that all information coming from any such organisation is, in principle, unreliable as far as that regards China.

Not that it was, even at the best of times, possible to be comprehensive and reliable regarding financial information regarding China! But we could have been at least somewhat confident, earlier, that providers of financial information were trying their best to be comprehensive and reliable. Now even that confidence is taken away. We have to simply accept Chinese propaganda wholesale - or ignore China completely when it comes to thinking about any investments or the impact of any investments.

Under the new rules, which come into effect on June 1, foreign providers of financial information must not distribute data that "contravenes the basic principles of the constitution of the People's Republic of China" - in other words, they cannot report any demonstrations or news regarding any dissidents; indeed, anything that questions the control of the Communist Party or its ideas, rules and policies. Equally banned is anything that threatens state security or national unity, and information that "damages the economy, finances, the capital markets or social stability".

The rules will be overseen by the State Council Information Centre, which is to replace Xinhua as the regulator.

China used to jail reporters who had the temerity to disclose financial data. It seems that the bad old days are back.

So much for woolly-brained people who believe that "engagement" with exploitative elites inevitability leads to "increasing openness". At least in China's case, after some hesitant openness over the last 20 years or so, the gates seem to be shutting fast and returning the country to Mao's days as far as press freedom is concerned.

Economic decline is bound to follow - sooner or later.

Meanwhile, what about the USA? Is it any better? Not really. Companies used to be forced to "mark to market" - that is, they were required to put their assets and liabilities at market value, according to more or less established and internationally accepted models for calculating their value. That is no longer the case. According to the new US rules, companies can now put the value of their assets and liabilities down in their books at whatever they like.

Beware therefore of new figures coming out of US companies indicating that they are returning to health.

Now you simply don't know. They may actually be starting to become healthy. Or they may simply be fooling you.

Investors now have less and less reliable information on which to make their decisions, whether from China or from the USA.

What can be done about such developments? I hope that everyone with any intelligence will use their influence to get the USA back on track regarding "mark to Market" (valuation models can always be improved and are always being improved by academics and theorists working on them, but inefficient valuation models are not a sufficient basis for throwing them out entirely; and to the argument that "mark to market" is pro-cyclical, the proper reply is: in that case, we need all kinds of other measures to actually stabilise markets across cycles, not open the possibility of fooling most of the people most of the time by enabling companies to put a false gloss on the information they make available).

And what can be done about China? I hope that all foreign publishers of financial information will band together and simply boycott Chinese financial information (which is the same now as "Chinese financial disinformation"). More, that foreign investors will also now boycott China as long as there is policy-induced decrease in information accuracy and transparency. Sphere: Related Content

No comments: