From Mr William Gamble.

Sir, Tian Wenhua, the Sanlu executive on trial in China for the tainted milk scandal, admitted knowing of complaints about the milk. What is particularly interesting is that she notified the local Shijiazhuang city officials but not central authorities.

There is an expression in Chinese – the emperor is behind the mountains and far away. In law and economics if there is sufficient economic incentive to break the law and insufficient legal disincentives, people will break the law. What is interesting here is that Ms Tian felt that the important people were the locals, not the central authorities.

This is important because it has to do with information. If local authorities in China are hiding information about tainted milk, what other information are they hiding? Economists, financial analysts and corporate strategists have based their forecasts about emerging markets on government statistics. What if those statistics were simply wrong?

No person anywhere has advanced their career by transmitting bad news. Undoubtedly there is a huge amount that we do not know about the present economic situation in China and other emerging markets. Western markets have most likely stabilised because, despite the deluge of bad news, most people believe that we know the worst. That is certainly not true of China.

William Gamble,
Emerging Market Strategies,
East Providence, RI, US