The Asian leadership arrives to it’s end

The Asian leadership arrives to it’s end

669
0
SHARE

It has been a while now since we first heard about the Chinese issue…In July 2015 a US news aggregator that tracks Chinese media published a leaked document that apparently informed the Chinese journalists the Chinese government was trying to cover the country’s financial problems. “Do not make detailed analyzes, nor advice or speculate on what direction the market is going,” he warned the memo. “Do not exaggerate the panic and sadness. Do not use emotionally charged words like ‘slump’, ‘peak’ and ‘collapse’. Today we know that the Chinese government was serious. A few weeks ago, state media have issued “confessions” of journalists who have taken responsibility for the turmoil that has occurred in the Shanghai stock market, the benchmark in the country.

thumb

It is not the volatility of the Chinese market and its potential impact on the world’s second economy that should concern us. It is that Beijing’s official reaction to these issues consists of silence debate on possible solutions and find scapegoats to take responsibility.  Fears about the stability of the Chinese economy are disproportionate. On the one hand, it is normal to worry about the impact of a faster global slowdown than expected. China is now the world’s main trading partner and a major driver of commodity prices. European and US stock markets go up and down according to the Chinese industrial data. Economies as diverse as Japan, Chile, Australia, Thailand, South Africa, South Korea, Brazil, Malaysia, Nigeria, Argentina, Russia and many others suffer if decreases in economic activity in China.

But the emerging giant will not experience any short-term emergency landing. With the state’s ability to encourage bank lending and investing heavily in infrastructure projects in diverse economic sectors of strategic importance, China will approach the growth target for this year, “about 7%.” The Shanghai market has fallen by 40% recently, but last year had an increase of 150%. Why the fall will be more indicative of the strength of the Chinese economy than what it rose before (much more)? Actually, it is an immature market, a barometer of the state’s hunger for political manipulation real economy. Only one in thirty Chinese citizens own shares, a percentage much lower than in developed markets.

 

stock market china

We shouldn’t feel too alarmed by China’s decision to devalue the currency. The measure did not have the sufficient size to alter China’s trade balance with its major partners, and the IMF has praised the decision, that approximates the value of the currency to market forces. The Chinese economy is more stable than many think, and its international influence will continue growing. Now it is hoped that the turbulent summer Chinese do understand the governments and companies that depend too much on China to long-term dangers exposed if the backs are not saved. Chances are that China remains stable for years. But the tendency of its leaders to cancel reforms necessary for the progress is frustrating, to intervene in markets that are better alone is disturbing. And even his habit of resorting to censorship and punishment.

China may not always remain strong and stable without economic reform. The authorities should give the Chinese people the ability to purchase more products manufactured there for the economy away from dependence on exports. It is a prerequisite for the existence of a large middle class and a lasting and sustainable growth. A huge transfer of wealth is needed to Chinese consumers.

 

china-middle-class

For those who will have to give up much of that wealth does not prevent the reforms, President Xi Jinping has launched an anti-corruption campaign that ended with thousands expelled from the party and thousands more in prison. For now, Xi retains all its power, but there is a growing list of potential enemies in the direction you can expect your government to lose the support of the population to retaliate. That is a risk that should be monitored. In short, fears of the immediate problems are exaggerated. But if we convince governments and companies that rely on China to prepare for more volatility and do not play all the Chinese ability to have a long-term stable growth, those fears will be useful.

NO COMMENTS