According to Xinhua, China is about to inject 1 trillion plus yuan ($188 billion US) to revitalize capital investment and spur more economic growth. Cynics may say this stimulus is to cover the gaping holes left by the market crash of recent weeks. Others may say the property market’s recent cooling down from record highs and the market meltdown may be causing a rethink of China’s march to a consumer economy.
The West, particularly America, China’s biggest customer, makes a habit of reading the worst in to every Chinese issue. While it would be naïve to the point of imbecility to trust all information about China, from any source, the West is also missing the usual points:
1. China is a very complex economic entity. It also includes a lot of very mobile private capital, some of which headed for the exits when the trouble started. Big money is involved, big names are involved. Risks and consequences affect the balance of power, both economically and politically.
2. Many Western pundits say that China fears “unrest” as a result of the major capital hits. In practice, China fears another, much deeper type of unrest – Loss of credibility and the results of failing to meet the general expectation that the government will fix whatever’s wrong. That type of unrest leads to what China loathes most – Another vicious internal blame game which can trash very large numbers of people, businesses, and their money.
3. Loss of credibility impacts at multiple levels with potentially very negative implications. The government can’t be seen to be wrong. The recent crackdown on “wrong” journalism covering the market crash is a case in point.
4. China naturally doesn’t want to jeopardize its success. The property and stock market issues have been giving a terrible look to the Chinese economy. Obviously, something has to be done.
There’s another, underlying, fact – The Chinese stock market went up 100 percent in one year. The market turned in to a casino. Foreign analysts were scratching their heads in disbelief. It’s understandable that the Chinese weren’t prepared for something with which the West is all too familiar — market manipulation, speculation, and other “innovative” forms of fraud.
Nothing else went up 100 percent. The economy didn’t grow by 100 percent, the value of the stocks in real terms didn’t go up by 100 percent, but the Shanghai market went ballistically upwards.
This very implausible situation could have only one outcome — an equally fast, uncontrolled, descent. These are real losses, not paper losses. The Chinese government may have been rather slow to see the problems, but who complains when things are going well? This denouement was always going to happen. Nobody should have been surprised, but everyone was.
In this scenario, almost any fix is justifiable to a large extent. Even the shutting down of trading in some stocks may well relate to ridiculously overpriced companies simply cashing in on the general euphoria of the big rise in the market. Those stocks may or may not have been purely speculative, anyway.
Add to this the very nasty, hideously ugly Chinese shadow economy, (for “shadow” read “criminal”) and you have all the ingredients for a truly lousy bowl of something. The genuine idealism and major achievements of the past decades have attracted the market rats, opportunists, and fraudsters — at the expense of a quarter of the world’s population.
Let’s also be serious about the fact that any real severe crash of the Chinese economy would be a catastrophe for the world economy. Forget politics, forget economic theory, nobody knows what will happen if this gigantic economy hits real trouble. Read in to the new stimulus what you may, but don’t forget that point.
The West should be a lot more realistic about this situation — it’s obvious what’s happened. Talk is useless. Fixing problems is what matters. Making it worse with ignorant innuendo, causing more problems, could be a serious own goal. The world and China are in lock step, economically. Like the U.S. in 2009, if China goes down, nobody can bail it out. Let’s just hope China gets it right, and the damage is easy to bury.
