Focus Media Paints Nasty Picture of Chinese Economy

Beijing has been taking steps to avoid a post-Olympics slowdown, but you wouldn't know it reading these comments from Focus Media's (FMCN) third-quarter earnings conference call:

"We saw a hugely challenging advertising environment towards the end of the third quarter, early in the fourth quarter. The recent global financial turmoil and the slowdown in consumer demand in the US and European markets have had a significant negative impact on the Chinese economy, as well as on the mindset of the corporate decision-makers in China. The market we are facing is the most severe in the recent history of the Chinese advertising industry."

"And back in September, our Analyst Day, we did have some visibility for the upcoming quarters, and we have worked hard with our sales team. Normal year, we do have – we always have slow fourth quarter in the last three, four years. This year, since the economy changed so much dramatically, it started from late September; we have experienced some delay, postponed on our current contract with customers."

It is typical for any economy to suffer from a post-Olympics hangover as growth slows from a period of artificially-inflated economic demand. After all, you can only use so many stadiums. Unfortunately, the whole world is screeching to the halt right now, which doesn't bode well for the Chinese economy. If advertising budgets are being cut, then don't expect China to bounce back anytime soon, because a lack of confidence can be absolutely toxic.

The fact that the Chinese government is getting so aggressive to hold up its economy should be considered to be bearish, not bullish. Governments and large bureaucracies intervene only when they're freaked because things are awful. For parallels to the Chinese government's activities, look at all the US government's done to prop up the financial sector this year, and OPEC's desperation to hold up oil prices. How did those turn out? The world moves in cycles, and you can only influence them so much.

On a positive note, the Chinese online gaming sector remains in relatively good shape. Perfect World (PWRD), a stock I own, reported pretty solid Q3 results on Monday morning, showing that not all of China is croaking. I'd add to my position, but I'm pretty worried about ongoing multiple shrinkage.

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