Let me start with some thoughts about the past before I get on to what makes me worried today. I met quite a few business leaders in my time at VC and ACC, who in longing for an ideal government – one that understands business and is willing to put its trust in it – looked to China. There is a country with an enlightened Politburo which understands that business needs support, that a course must be set and new paths of development must be charted. This country tells its people which university degrees will be in demand under the next long-term central plan and thus ensures that the lucrative sectors in the market will have a steady supply of specialists. And there is no doubt that if the state has put so much effort into getting this or that sector off the ground, some of that economic largesse will trickle down. One only needs to follow the directions.
I have often wondered if I am fatally attracted to chaos by championing the market instincts of private companies or whether this China thing does add up actually. All the signals that I was getting from the market seemed to support my theory – the private initiative is better because financial initiatives sponsored by government programmes tend to be ineffective. The OECD and the World Bank materials backed my case. The charge against China was this: the Chinese model produces investment bubbles which later burst and although some good companies survive, the process is not very effective.
Meanwhile Chinese and Western daydreamers looked at the fast- and steadily growing GDP in China (even if it slowed down from time to time) and thought how cool it would be to do business in China. And even when someone muttered something about speculative bubbles and bursting, faith in the Politburo remained unshaken.
Were it not for Grexit, we’d all continue looking at something that, imperceptible as it may be to us Europeans, is happening around the South China Sea, at the mouth of the Yangtze river. The Politburo is fighting hard, changing regulations, doing all it can while the Chinese stock markets are crashing like Chinese junks down a waterfall.
I don’t want to bore you with all the possible indexes, so here are just a few to prove my point: SSE Composite was worth 5023,10 points on 5 June. Between then and 16 June it continued a slow downward trend until it reached 4887.43 only to slip down or perhaps to nosedive to no more than 3686.92 points. In other words, the Shanghai market lost a quarter of its value in the space of just one month.
The blame, say the authorities, lies with the short traders. They sell short (borrow more expensive shares, sell them and repay the debt when the shares have gone down in value, keeping the difference between the rates). But no one has yet proved a worthy opponent of the market, so, sorry to say, I don’t fancy the Chinese Politburo’s chances either.
And this has me worried a little, because when I look at Greece and think about the ongoing crisis in Europe, I can’t help but wish that we could all do with a similarly fast growing GDP in Europe. And it .. as the anger from several quarters slows down. In this year’s first quarter it closed at 7% (year on year) and thus reached its lowest level in 6 years.
And you know what worries me even more? If nothing has changed (I for one haven’t come across any scholarly publication on the subject), such a fall can lead to the recession widely anticipated by the investors (understood to be a growth level below the 10-year average). Now, that would be a shame …
There is a light in the tunnel though, and it need not be the light of an oncoming train: the Indian economy is picking up. So, after all, there may still be someone around to keep up the world GDP.
One way or another, the far East is now an economic melting pot. I’m going there on holiday but I might not be able to resist penning a few sentences for the blog while I’m there. Especially in this situation!
Other noteworthy sites:
Short, interesting and with a graph – best economists and their forecasts for China:
Big bang! Or the last 11 months of the SSE Composite success and one month of a spectacular nosedive:
Chasing the dragon – or India’s GDP outpacing that of China: