For all the hype about China’s great leap forward to 2025, the nation’s leaders find themselves with one foot stuck in 2015. This high-stakes game of geopolitical Twister is playing out in Shanghai stocks – again.
The first go-around was the summer of 2015, when worries about Chinese growth and extreme corporate opacity had shares in virtual free-fall. In just over three weeks, Shanghai stocks lost 30%, prompting more than 1,400 companies to request trading halts.
The exodus of liquidity had Beijing taking a “kitchen sink” approach – literally tossing everything it could think of at short-sellers. Officials slashed interest rates, loosened leverage requirements, bought shares, imposed capital controls, tweaked margin-trading regulations, suspended initial public offerings, allowed punters to put up homes as collateral.
President Xi Jinping’s team launched a marketing campaign to encourage households to buy the market out of patriotism.
Despite those Herculean efforts, Shanghai shares are now below 2015 levels. The ongoing $3 trillion rout has the Shanghai Composite Index at the lowest since November 2014. Why? The same concerns about growth and dodgy corporate governance.
Donald Trump’s trade war surely isn’t helping. But if Xi’s government had worked harder to modernize corporate practices, recalibrate growth engines away from exports and get the government’s hand out of the economy, US President Trump’s tariffs wouldn’t be an existential threat.
Beijing, in other words, made the Japan-like mistake of treating the symptoms of its problems, not the underlying causes. Xi is erring anew as Beijing ramps up stimulus efforts that will only exacerbate dueling bubbles in credit, debt and property.
His team also is cutting taxes as data on exports, fixed-income investment and purchasing managers’ orders turn ugly. So, sure, China might make this year’s 6.5% growth target, but at what cost in the long run?
The yuan’s drop by that same amount – 6.4% – this year is another metric worth considering. It sheds light on why Xi’s team is desperately working to keep capital in China.
It also presents a wildcard: might the yuan’s trajectory run afoul of the trade-warrior-in-chief in the White House? The risk is it provokes Trump to make good on threats to slap tariffs on yet another $250 billion of mainland goods, bringing the tally to $500 billion.
The last few weeks were dominated by reappraisals of the 2008 Lehman Brothers crisis. Developing Asia was forced to reassess how far it’s come – and hasn’t – since in 1997-1997 meltdown. Powerful plunges in currencies from Jakarta to Manila suggested that efforts to internationalize Southeast Asian economies weren’t as thorough as hoped.
Financial systems are stronger, governments more transparent and currencies more flexible. But efforts to wean economies off exports were half-hearted, at best. So were efforts, in some cases, to swing chronic current-account and budget deficits to surpluses.
China, meantime, is being haunted by a glacial pace of reform these last few years. In 2013, Xi pledged to let market forces play a “decisive role” in Communist Party decision-making. Yet he slow-walked moves to curb state-owned enterprises, loosen controls on free expression and give innovators greater latitude to disrupt China Inc.
It’s quite a paradox. Xi is investing trillions of dollars in a “Made in China 2025” scheme to dominate software, artificial intelligence, renewable energies, robotics, self-driving vehicles, high-speed rail, pharmaceuticals, you name it. But market chaos in Shanghai reminds us that the foundations beneath China’s ambitions are frail and, perhaps, due for a reckoning.
Yes, China is a unique development specimen. That will happen when the most populous nation becomes the No. 2 economy well before per-capital income decisively tops $10,000 in nominal terms. But no industrializing nation has ever avoided a financial comeuppance. Neither will China.
Whether this latest plunge in Shanghai suggests what eventually is afoot is anyone’s guess. And surely, Xi’s team is remarkably skilled as averting disaster. But, at the very least, the return of bedlam to Shanghai trading suggests China Inc’s troubles are growing almost as rapidly as GDP.
Why wouldn’t they understand it? Is it written in Chinese?
Why wouldn’t they understand it? Is it written in Chinese?
The writer does not understand the Chinese economy structure. The average Chinese household savings is one the highest in the world. The Chinese economic model can be only understood by the Communist Party of China. Any western economist will never understand it’s structure and mechanisms.
The writer does not understand the Chinese economy structure. The average Chinese household savings is one the highest in the world. The Chinese economic model can be only understood by the Communist Party of China. Any western economist will never understand it’s structure and mechanisms.
Stock and currency speculation adds very little and even doubious value. Short selling should be closely regulated. Shorting physical gold with paper gold for so long has siphoned hundreds of billion Dollars to few unregulated and unaudited perpetrators. A swiss study revealed that a cabel of very rich elites controls 60% of the top 4,000 corporations. With such wealth of hundred trillions they can further enrich themselves easily via speculations on the economic blood and livelihood of others
Stock and currency speculation adds very little and even doubious value. Short selling should be closely regulated. Shorting physical gold with paper gold for so long has siphoned hundreds of billion Dollars to few unregulated and unaudited perpetrators. A swiss study revealed that a cabel of very rich elites controls 60% of the top 4,000 corporations. With such wealth of hundred trillions they can further enrich themselves easily via speculations on the economic blood and livelihood of others
Fantastic!
To the writer: What does it mean 2015 and what does it has to be in 2018?
Maybe like Sears in 2018?
To the writer: What does it mean 2015 and what does it has to be in 2018?
Maybe like Sears in 2018?
This article is weird, because for most of it, it is crying out that China is about to get it’s "financial comeuppance", whatever that means, because they are not a free market economy, but then states at the end of the article that the chinese are skilled and therefore who knows! Well, which is it?
If you look at the last five years of the Shanghai Stock Exchange it really doesn’t look that bad, but then who am I to tell?
This article is weird, because for most of it, it is crying out that China is about to get it’s "financial comeuppance", whatever that means, because they are not a free market economy, but then states at the end of the article that the chinese are skilled and therefore who knows! Well, which is it?
If you look at the last five years of the Shanghai Stock Exchange it really doesn’t look that bad, but then who am I to tell?
Time to buy low sell high. My SNP still up 200% ahhahaha
Time to buy low sell high. My SNP still up 200% ahhahaha
"Whether this latest plunge in Shanghai suggests what eventually is afoot is anyone’s guess."
I’ll give it a go. The stock market is not central to the Chinese economy like in the capitalist countries. In 2008 and 2015, China’s GDP increased within a reasonably normal range. A crash like 2015 would have obliterated the capitalist economies of the West.
"Whether this latest plunge in Shanghai suggests what eventually is afoot is anyone’s guess."
I’ll give it a go. The stock market is not central to the Chinese economy like in the capitalist countries. In 2008 and 2015, China’s GDP increased within a reasonably normal range. A crash like 2015 would have obliterated the capitalist economies of the West.
The sky is NOT falling for China! A historical analysis of wall street and stock prices shows that it is not unusual to have a prolonged bear market for a long period of time as is the case for a prolonged bulls market. Here in the US we are in the midst of a long bulls market which will start its correction. It is wishful thinking on your part to wish disaster on the Chinese.
The sky is NOT falling for China! A historical analysis of wall street and stock prices shows that it is not unusual to have a prolonged bear market for a long period of time as is the case for a prolonged bulls market. Here in the US we are in the midst of a long bulls market which will start its correction. It is wishful thinking on your part to wish disaster on the Chinese.