Eoin Treacy's view I spent much of the last 10 days accompanying Mrs. Treacy on her tour of markets, factories and warehouses in Zhejiang province mostly west of Shanghai. China's moniker as workshop of the world is well deserved. I met people from as far a field as Australia, Chile, Nigeria, Germany, Netherlands, Egypt and the USA, all in China sourcing goods for their respective businesses. A number of common themes emerged.

The high profile collapse of private lending trusts in Wenzhou has shaken confidence among manufacturers. Almost everyone we talked to complained about the falloff in business from the USA and Europe. Volume of sales is down and the problem of customers paying a deposit for goods and subsequently failing to pick up the finished products and settling the balance is still a risk.

In cities surrounding Wenzhou there was a sense that the same could happen to them and that the government's tightening had gone too far. In the West, there has been much talk over the last decade about the Greenspan/Bernanke Put, whereby the central bank is expected to come to the rescue of the markets. In China, manufacturers expressed an expectation that the central government would not allow the export oriented manufacturing base to founder because of tight monetary policy. It is therefore interesting that Premier Wen's statement yesterday focused on potential changes to the country's monetary policy. Measures to improve credit availability for SME's would be well received,

The perception that Chinese companies are heavily exposed to the property markets appears to be reasonably well founded. We came across two examples. The first is one of the largest exporters of costume jewellery. It is partially owned by the government and is championed at home and abroad for the quality of its products. However, the company is also heavily invested in commercial property and is widely believed to rely more on rental income than the margin from its goods. At another site, we spoke to the founders of a company employing 250 people. They deal primarily with domestic clients. The family moved back from Russia 15 years ago and bought a factory in a rural area. Their factory is now in a suburb and they have rented out two thirds of their space to other manufacturers. They readily admitted to relying more on rents than the margin from their business. It is little wonder that the focus of government policy has been to contain speculation in the property market.

Coincidently I was sitting next to the same Dutch buyer on the plane both too and from China. He travels to China four times a year sourcing goods for his corporate gifts business. He mentioned that in his experience most Chinese factories are slow to invest in new machinery because their labour costs are still reasonably low despite recent wage hikes. He compared the situation to Europe where companies are much more eager to invest in machinery than new workers because of labour costs and strict laws on hiring and firing. In the basic packaging sector, (i.e. plastic bags and cardboard boxes), where he has a direct interest, he averred that a number of European companies are now competitive with China in terms of costs due to efficiency gains and the strength of the Renminbi.

Since November 2007, the Renminbi has appreciated by approximately 35% against the British Pound, 20% against the Euro and 15% against the US Dollar. I met a wholesaler from Miami who traverses China in search of goods at least twice a year. She confirmed margin compression due to the strength of the Renminbi because she was unable to pass on higher costs to her US customers.

There is a Chinese saying to the effect that you shouldn't brag about how connected you are when you go to Beijing because there is always someone more connected than you in that city. When you go to Shenzhen you shouldn't brag about how rich you are because there is always someone wealthier. There are a number of others examples which are not suitable for polite company. These sayings came to mind in a number of the cities we visited because of the number of Porsches on the street. Mercedes' and BMWs are relatively common in China but German sports cars seemed to be particularly common. Conspicuous materialism is evident across China but is perhaps more noticeable outside of the Tier 1 cities because of the wider gap between rich and poor. This demand has helped luxury brands outstrip analyst earnings expectations.

In conclusion, sentiment towards the Chinese economy and stock market has become increasingly bearish. It would be naïve to think that China is without problems. However, it is well placed to deal with them. Monetary tightening has been an overriding concern for the last few years; much more so than other major economies. This situation appears to be at least moderating. Valuations are not expensive and the stock market is overextended relative to the 200-day MA. This raises the possibility that we are closer to an important low than many might surmise.