Lessons for China from the world financial crisis
“In the past, China has been blamed for the low-degree of internationalization of its financial industries. Now it seems we are profiting from this ‘fault’,” the commentary said.
Many Chinese economists share this view. “Our not-fully-open financial system and not-fully-convertible currency saved China from being rattled during the 1997 Asian Financial Crisis. And now again this seems to be a strong dam to protect us against the current financial tsunami,” an economics researcher with the Chinese Academy of Social Sciences (CASS) said.
“It is evident that the financial industries cannot become entirely market oriented. The semi-market, semi-government-control system may prove a better [system]. The problem in China is that the part of government control is too big and thus reforms are needed to deregulate.”
In early September, Steven N S Cheung, a Hong Kong-born Chinese-American economist living in exile in China, being wanted by the US government for alleged tax evasion, claimed that China “has formed the best system in the history of human kind”.
Hyperbole from Mr. Cheung aside, it doesn’t mean all people are happy with this setup. As the article briefly alludes, sovereign wealth fund management has made some extremely poor decisions at heavy losses to taxpayers. Some left-leaning intellectuals — the Chinese protectionists if you will — wanted those investments to go domestically, and generally do not think the firewalls are high enough, from the way China allows foreign capital and ownership control into the domestic market to the continuing holding and purchasing of US debt.
And while a bigger government role in the markets may be praised by some, domestic investors are not all that happy: the Shanghai A-shares have declined more than 60% from its bubbly peak at the beginning of the year. Even though it is still up since the beginning of 2007, and up a lot since any time before then, the speculative participation by everybody’s aunt and grandma means lots of people are now crying uncle. They see their misfortune, not entirely unreasonably, as resulting from frequent intervention by the government and inside participants, all captured in good humor in multiple parodies of the Olympics folksong Beijing Welcomes You, called “Stock Market Welcomes You”. Some choice lines:
Stock market crashes often,
Open traps await you.
If you bought then don’t think to leave,
You will waste away here.
Stock market welcomes you,
Dug a big hole just for you.
Let’s sell our houses and
add to our positions.
Stock market welcomes you,
If there is a bounce, they just dilute the shares.
A market we don’t comprehend,
nor its dirty secrets.
How China’s economy as well as political system develop will be affected by the ultimate balance struck between isolation and integrating into the world on the one hand, and between government control and free market on the other.
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