DQ-en

Orville Schell is a hugely respected, long-time China observer. Like everyone else, rightly, he reckons China has many things it needs to do to make life better for its people. In his Guardian Long Read (16 July 2015) he describes some of his vision. He includes in his analysis what he calls today’s “obvious contradiction” that captures “China’s divided modern self”, namely the tension “between a largely self-regulating financial market and a highly controlled and centralised economy”.  Schell’s views give a narrative for that large global economic event – possibly larger even than a possible Greek exit from the Eurozone – that is the 30% crash of June/July in China’s stock market and the dramatic state intervention that followed:

Much resonates in the overall thrust of Schell’s argument.  But some things jar.  When he says

“In the world of economics, there are few institutions more dependent than stock exchanges on an ability to respond in an unfettered way to market forces. After all, in the world of politics, however, there are few systems more dedicated to maintaining central control and empowering state intervention than that of the People’s Republic of China. In short, it seemed highly unlikely these opposite tendencies could coexist in happy synergy for ever: what we have seen playing out in China over the past few weeks, then, was a kind of delayed autoimmune reaction to having such an alien presence transplanted within it.”

follows it up with (what I’d earlier paraphrased):

“The obvious contradiction between a largely self-regulating financial market and a highly controlled and centralised economy is a graphic representation of China’s divided modern-day self.”

and along the way points to:

“The extent of the party’s belated panic may have been best captured by the absurd instruction given by party propaganda officials to students at Tsinghua University School of Economics and Management, who were told to loudly chant, at the start of their graduation ceremony, “Revive the A-shares! Benefit the people!””

I have to ask, is this event really the best way to capture the power of his argument?

A bit of context:

1. Post 2008 Global Financial Crisis we no longer occupy the go-go Greenspan era here in the decentralised, liberal west. We might have once carried a mantra about "self-regulating financial markets" and the need for them to "respond in unfettered ways to market forces". No longer; we learnt better. If in light of these June/July stock market gyrations the Chinese authorities are having related thoughts, it might not be just because they’re dedicated to centralised control.  And, what’s worse, these recent vibrations in China’s asset markets aren’t even that massive.
2. All the triangulation I have been able to establish with my students in Beijing suggests the possibility that instead of party propaganda officials directing them with slogans to “buy A shares to benefit the people”, those officials were bystanders at best.  Instead, all indications are that those photos on social media came from a combination of light-hearted graduation hi-jinks and tongue-in-cheek Chinese sloganeering that translates badly for Western sensibilities.  Oops.  [Schell understands Chinese culture far better than most of the rest of us ever will.  But the new world of social media is likely a puzzle to everyone until Buzzfeed or Huffington Post explains each development a day or so after.]
3. Sure, China’s authorities are way over-reacting. Not to suggest they were right to do so, but again for perspective: Our own ESMA and Rule 150 short-selling bans in the West? Our 1998 LTCM response? 2009 TARP? As Hank Paulson reminds us, torturing prisoners in Guantanamo Bay ranked more favourably with the American public than did TARP – but Paulson felt he had to go ahead with TARP anyway. QE since 2009? Once again China just copied the West, only bigger. Out of all proportion bigger.

They need to stop doing this. Copying the West with Chinese characteristics.  It doesn’t make China look good, and given how we in the West respond when they do, it makes us look even worse.