Chinese Stocks Suffer Second Biggest Crash In History, 1,500 Companies Halted Limit Down
27
July, 2015
This
was not supposed to happen.
After
pledging, investing and otherwise guaranteeing the Chinese stock
market to the tune of 10%
of GDP,
and intervening on at least 40 different occasions in the past month
ever since China's stock bubble burst in late June, with the
subsequent crash nearly taking the Shanghai Composite red for the
year, overnight China officially lost control for
the second time, when
after a weak start to the Monday trading session, things turned very
ugly in the last hour, when the Shanghai Composite plunged by 8.48%,
closing nearly at the lows, and tumbling some 345 points for its
biggest one-day drop since February 2007 and its second biggest crash
in history!
The
selling was steady throughout the day, but spiked in the last hour on
concerns China would rein in its market-supporting programs following
IMF demands to normalize its relentless market intervention.
According to Bloomberg's Richard Breslow: "fear that the
extraordinary support measures employed to hold up the market may be
scaled back caused heavy afternoon selling resulting in a down 8.5%
day." Of course, one can come up with any number of theories to
explain the plunge: for example the PBOC did not buy enough to offset
the relentless selling.
The
last thing the communist party and the PBOC wanted was another
massive sell off after having not only fired the "bazooka"
but come up with a different bazooka to halt "malicious sellers"
virtually every day, including threats of arrest.
Nobody
was spared in the selloff and of the 1,114 stocks in the Shanghai
Composite, 13 closed higher on Monday.
- The Shanghai Composite Index ended down 8.5% at 3725.56, its second-straight day of losses and worst daily percentage fall since February 27, 2007. The smaller Shenzhen Composite fell 7% to 2160.09 and the ChiNext, composed of small-cap stocks and sometimes known as China’s Nasdaq, closed 7.4% lower at 2683.45.
- More than two-thirds of the stocks in the Shanghai Composite, or about 765 companies, hit their down limit on Monday. Those limits prevented hundreds of stocks from logging sharper declines, though they can also make it harder for investors to exit positions.
- Since the Shanghai Composite peaked in June, it has lost 28% of its
value. Massive intervention by authorities in Beijing engineered a
rebound for the country’s stock markets earlier this month, but Monday’s
selloff eroded much of that recovery. - Although hundreds of stocks have resumed trading since the market bottomed earlier this month,126 stocks on the Shanghai Composite are still halted.
- International investors have been ditching Chinese stocks for the past few weeks, spooked by widespread share suspensions that locked up capital. Investors sold stocks during 13 of the past 16 trading sessions via the Shanghai-Hong Kong Stock Connect, a trading link connecting the two cities that launched in November. Cumulative outflows now total 39.9 billion yuan, or U.S. $6.43 billion.
According to
Reuters,
there was little to explain the scale of the sell-off. Some analysts
said fears that China may hold off from further loosening of monetary
policy had contributed to souring investor sentiment.
Sure
enough, narratives to "explain" the selling which beget
more selling, were promptly offered, as can be seen in this Bloomberg
summary of aftter the fact research reports;
NORTHEAST
SECURITIES
- “The decline, extending losses on Friday, is a technical correction after hundreds of companies rebounded 50% with dozens of stocks even doubling after the sell-off,” analyst Shen Zhengyang says by phone
- “The rebound from the earlier sell-off has pretty much come to an end and the market needs to take a breather”
- Possible expansion of yuan band may put the currency under depreciation pressure, while pick-up in home prices in 1st- tier cities may mean weaker-than-expected monetary easing policies going forward
- Mkt might enter range-bound consolidation after technical correction, but upside will be limited as investor confidence was shattered in earlier sell-off
CHINA
SOUTHERN FUND
- Mkt slumps due to “fragile” investment sentiment, investors locking in profit from previous rebound: chief strategist Yang Delong says in phone interview
- A shares extend decline as investors started to take profit from last Friday after recent mkt rebound
- Investors lose faith in a longer-term rebound
- Expects China to roll out more measures to boost A shrs if SHCOMP drops below 3,800
- Govt backed funds, with big enough war chest, may buy stocks after mkt slump today
SHENWAN
HONGYUAN GROUP
- Pullback today mainly due to profit-taking, while news on possible govt exit of mkt rescue also has impact on mkt: analyst Qian Qimin
- Weakness in heavyweight stks may lead to “double dip” in mkt, sees “policy bottom” at 3,500 points as index below that level may trigger panic again
- Fundamentals underpinning bull mkt may have disappeared given low probability in further monetary easing, potential investment shifting to property mkt, more cautious mkt sentiment
SINOLINK
SECURITIES
- A share slump today is an “aftershock” as mkt sentiment needs longer time to recover from previous mkt correction: analyst Huang Cendong
We
agree with one thing: having gone all in, the Chinese government
can't stop now, and after pledging half a trillion for its Plunge
Protection Team (recall China skipped all the QE pleasantries and
proceeded straight to buying stocks, launching a
quasi-nationalization of the market and making the China
Securities Finance Corp a Top 10 shareholder of numerous stocks),
it will be forced to do even more, in the process crushing confidence
that much more, since investors both offshore and domestic, realize
that the fair value of stocks is far lower than current price ex.
government intervention.
"Investors
are not confident that the bull market will return any time soon,"
Jimmy Zuo, a trader at Guosen Securities, told Bloomberg.
"People
want to pocket profits after the benchmark index rose past the 4,000
mark."
And
who can blame them? The only question we have is when will people in
other "developed" markets wake up to their own just as
manipulated markets, and decide they too have had enough with the
rigged casino.
Actually,
there is another question: the last time Chinese stocks had a
near-record crash, the PBOC somehow "discovered" 600 tons
of gold hiding under the couch to prop up confidence. We wonder how
much it will "discover" this time.
From the South China Morning Post
From the South China Morning Post
Government
action to prop up stocks buckles under selling pressure as the
Shanghai index suffers biggest one-day fall in eight years
What Loss Of Control Looks Like: Chinese Regulator Urges Traders To Rat Out "Malicious Sellers"
Investors
and savers hit as FTSE 100's gains for 2015 are wiped out
The
UK's benchmark index fell as much as 1.2pc, wiping out gains so far
this year
27
July, 2015
Gains
made on Britain’s benchmark index so far this year have been wiped
out after the FTSE 100 fell as much as 1.2pc in afternoon trade.
At
3.30pm, the FTSE 100 was trading around 6,500 mark - 66.09 points
below its 6,566.09 closing position on December 31 last year.
The
top flight index - made up of the UK's biggest 100 companies - had
been flat in early trade this morning as losses from
both Pearson andMerlin were
offset by the rebound
in gold prices, which
helped gold miners edge towards the top of the index.
But
as investors began to consider the potential impact of the biggest
one day drop in Chinese stocks in eight years, it
sank lower.
European
bourses were also dragged lower as concerns over Chinese growth
weighed on investor sentiment.
“With
China the dominant factor driving industrial metal prices, these
fears are fueling falling metal prices,” Rebecca O’Keefe, of
Interactive Investor, said.
"This
fall in global commodity prices is putting pressure on many
individual stocks and is acting as a serious drag on global markets,”
Ms O’Keefe added. FTSE 100 miner Antofagasta and Glencore have
fallen 2.9pc and 3.1pc, respectively, in afternoon trade.
Meanwhile,
Jameel Ahmad, of ForexTime, warned a resumed selling in commodities
is inspiring markets to decline, as “a combination of indications
suggest a deeper downturn in the Chinese economy than previously
expected”.
The
opening bell in Wall Street did little to calm sentiment, as US
markets also opened lowerfollowing a sell-off in Shanghai shares
amid concerns over China’s slowing growth.
The
Dow Jones fell 0.5pc to 17,482.61, the S&P 500 slipped 0.4pc to
2,071.97 and the Nasdaq composite dropped 0.7pc to 5,053.37.
Oil slump leads to $200bn cut in new energy projects - study
27
July, 2015
The
world’s top energy firms have put off $200 billion in spending on
46 major oil and gas projects due to the oil price slump, according
to energy consultancy Wood Mackenzie. This is in reaction to the oil
price dropping, with it now at to 4-month low.
“The
dramatic fall in oil prices in 2014 and subsequent dismantling of
2015 company budgets has, by mid-year, already resulted in over 45
major project final investment decision (FID) deferrals,” analyst
Angus Rodger from Wood Mackenzie reported late
Friday in his blog.
The
deferred range of onshore, shallow-water and deepwater projects had
20 billion barrels of oil, according to the report.
#BlogAlert: Pre-FID project deferrals: 20 billion boe and countinghttp://t.co/ThQZJisne6#oilprice#energy#Upstreampic.twitter.com/NG3DJOPDNc
— Wood Mackenzie (@WoodMackenzie) July 27, 2015
Over
50 percent of those reserves are located in deepwater projects, and
nearly 30 percent in Canadian oil sands. The majority of the projects
are “targeting
start-up between 2019 and 2023”. If
major energy firms continue cutting future capital commitments then
those dates will be pushed back further.
BP,
Shell, Chevron, Statoil and Woodside Petroleum are said to be among
the big companies postponing projects, the FTreports.
This week Shell will set out deeper cuts to its capital spending,
with its more recent expenditure estimated at $33 billion.
Postponing “final
investment decisions” is
one of the responses to falling oil prices as it frees up capital
that can be deployed elsewhere and pushes back expenditure. This can
ease the hit falling crude prices has on revenue.
Calling
off investment also boosts free cash flow and helps the companies
cover dividend payouts which can strengthen investor confidence.
The
sliding oil price has been matched by a broader decline in a value of
copper, gold and other raw materials, which pushed the Bloomberg
commodities index to a six-year low.
After
more than a 30 percent rebound in the first quarter of 2015, oil
prices have started falling again.
On
Monday crude fell to near four-month lows due to sharp drop in
Chinese stock markets. Evidence of a global oil supply glut has
halved prices in the past year also affected the crude plunge.
Brent
crude for September on Monday was down to $53.41 a barrel at
17:20 MSK. West Texas Intermediate (WTI) stood at $47.37.
China Stock Market CRASHING as Central Bank Buying Shares to Prevent COLLAPSE!
China’s Record Dumping Of US Treasuries Leaves Goldman Speechless
On
Friday, alongside China’s announcement that it had bought over 600
tons of gold in “one month”, the PBOC released another very
important data point: its total foreign
exchange reserves, which declined by $17.3 billion to $3,694 billion.
We
then put China’s change in FX reserves alongside the total Treasury
holdings of China and its “anonymous” offshore Treasury dealer
Euroclear (aka “Belgium”) as released by TIC, and found that the
dramatic relationship which we
first discovered back in May,
has persisted – namely virtually the entire delta in Chinese FX
reserves come via China’s US Treasury holdings. As in they are
being aggressively sold, to the tune of $107 billion in Treasury
sales so far in 2015.
We explained all of his on Friday in “China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium“, and frankly we have been surprised that this extremely important topic has not gotten broader attention.
Then,
to our relief, first JPM noticed. This is what Nikolaos
Panigirtzoglou, author of Flows and Liquidity had to say on the topic
of China’s dramatic reserve liquidation
Looking at China more specifically, it appears that, after adjusting for currency changes, Chinese FX reserves were depleted for a fourth straight quarter by around $50bn in Q2. The cumulative reserve depletion between Q3 2014 and Q2 2015 is $160bn after adjusting for currency changes. At the same time, a current account surplus in Q2 combined with a drawdown in reserves suggests that capital outflows from China continued for the fifth straight quarter. Assuming a current account surplus in Q2 of around $92bn, i.e. $16bn higher than in Q1 due to higher merchandise trade surplus, we estimate that around $142bn of capital left China in Q2, similar to the previous quarter.
JPM
conclusion is actually quite stunning:
This brings the cumulative capital outflow over the past five quarters to $520bn. Again, we approximate capital flow from the change in FX reserves minus the current account balance for each previous quarter to arrive at this estimate (Figure 2).
Incidentally,
$520 billion is roughly
triple what
implied Treasury sales would suggest as China’s capital outflow,
meaning that China is also liquidating some other USD-denominated
asset(s) at a feverish pace. So far we do not know which, but the
chart above and the magnitude of the Chinese capital outflow is
certainly the biggest story surrounding the world’s most populous
nation: what is happening in its stock market is just a diversion.
At
this point JPM goes into a tangent explaining what the practical
implications of a massive capital outflow from China are for the
global economy. Regular readers, especially those who have read
our previous
piece on the collapse in the Petrodollar,
the plunge in EM capital inflows, and their impact on capital markets
and global economies can skip this part. Those for whom the interplay
of capital flows and the global economy are new, are urged to read
the following:
One way that slower EM capital flows and credit creation affect the rest of the world is via trade and trade finance. Trade finance datasets are unfortunately not homogeneous and different measures capture different aspects of trade finance activity. Reuters data on trade finance only aggregates loan syndication deals, which have mandated lead arrangers and thus capture the trends in the large-scale trade lending business, rather than providing an all-inclusive loans database. Perhaps the largest source of regularly collected and methodologically consistent data on trade finance is credit insurers (see “Testing the Trade Credit and Trade Link: Evidence from Data on Export Credit Insurance”, Auboin and Engemann, 2013). The Berne Union, the international trade association for credit and investment insurers with 79 members, includes the world’s largest private credit insurers and public export credit agencies. The volume of trade credit insured by members of the Berne Union covered more than 10% of international trade in 2012. The Berne Union provides data on insured trade credit, for both short-term (ST) and medium- and long-term transactions (MLT). Short-term trade credit insurance accounts for the vast majority at around 90% of new business in line with IMF estimates that the vast majority 80%-90% of trade credit is short term.
Figure 4 shows both the Reuters (quarterly) and the Berne Union (annual) data on trade finance loan syndication and trade credit insurance volumes, respectively. The quarterly Reuters data showed a clear deceleration this year from the very high levels seen at the end of last year. Looking at the first two quarters of the year, Reuters volumes were down by 25% vs. the 2014 average (Figure 4).The more comprehensive Berne Union annual volumes are only available annually and the last observation is for 2014. These data showed a very benign trade finance picture up until the end of 2014. Trade finance volumes had been trending up since 2010 at an annual pace of 8.8% per annum (between 2010 and 2014) which is faster than global nominal GDP growth of 6% per annum, i.e. the trend in trade finance had been rather healthy up until 2014, but there are indications of material slowing this year. This is also reflected in world trade volumes which have also decelerated this year vs. strong growth in previous years (Figure 5).
Summarizing
the above as simply as possible: for
all those confounded by why not only the US, but the global economy,
hit another brick wall in Q1 the answer was neither snow, nor the
West Coast strike, nor some other, arbitrary, goal-seeked excuse, but
China, and specifically over half a trillion in still largely
unexplained Chinese capital outflows.
* *
*
But
wait, because it wasn’t just JPM whose attention perked up over the
weekend. This morning Goldman Sachs itself had a note titled “the
Curious Case of China’s Capital Outflows“:
China’s balance of payments has been undergoing important changes in recent quarters. The trade surplus has grown far above previous norms, running around $260bn in the first half of this year, compared with about $100bn during the same period last year and roughly $75bn on average during the previous seven years. Ordinarily, these kinds of numbers would see very rapid reserve accumulation, but this is not the case. Partly that is because China’s services balance has swung into meaningful deficit, so that the current account is quite a bit lower than the headline numbers from trade in goods would suggest. But the more important reason is that capital outflows have become very sizeable and now eclipse anything seen in the recent past. Headline FX reserves in the second quarter fell $36bn, from $3,730bn at end-March to $3,694bn at end-June. While we estimate that there was a large negative valuation effect in Q1 (due to the drop in EUR/$ on the ECB’s QE announcement), there was likely a positive valuation effect in Q2, which we put around $48bn. That means that our proxy for reserve accumulation in the second quarter is around -$85bn, i.e. the actual “flow” drop in reserves was bigger than the headline numbers suggest because of a flattering valuation effect. If we put that number together with the trade surplus in Q2 of $140bn, net capital outflows could be around -$224bn in the quarter, meaningfully up from the first quarter. There are caveats to this calculation, of course. There is obviously the services deficit that we mention above, which will tend to make this estimate less dramatic. It is also possible that our estimate for valuation effects is wrong. Indeed, there is some indication that valuation-related losses in Q1 were not nearly as large as implied by our calculations. But even if we adjust for these factors, net capital outflows might conceivably have run around -$200bn, an acceleration from Q1 and beyond anything seen historically.
Granted,
this is smaller than JPM’s $520 billion number but this also
captures a far shorter time period. Annualizing a $224 billion
outflow in one quarter would lead to a unprecedented $1 trillion
capital outflow out of China for the year. Needless to say, a capital
exodus of that pace and magnitude would suggest that something is
very, very wrong with not only China’s economy, but its capital
markets, and last but not least, its capital controls, which prohibit
any substantial outbound capital flight (at least for ordinary
people, the Politburo is clearly exempt from the regulations for the
“common folk”).
Back
to Goldman:
The big question is obviously what is driving these flows and how long they are likely to continue. We continue to take the view that a stock adjustment is at work, although it is clear that the turning point is yet to come. We will look at this in one of our next FX Views. In the interim, we think an easier question is what this means for G10 FX. This is because this shift in China’s balance of payments is sure to depress reserve accumulation across EM as a whole, such that reserve recycling – a factor associated with Euro strength in the past – is unlikely to be sizeable for quite some time.
In
other words, for once Goldman is speechless, however it is quick to
point out that what traditionally has been a major source of reserve
reflow, the Chinese current and capital accounts, is no longer there.
It
also means that what may have been one of the biggest drivers of DM
FX strength in recent years, if only against the pegged Renminbi, is
suddenly no longer present.
While
the implications of this on the global FX scene are profound, they
tie in to what we said last
November when
explaining the death of the petrodollar. For the most part, the
country most and first impacted from this capital outflow will be
China, something its stock market has already noticed in recent
weeks.
But
what is likely the take home message for non-Chinese readers from all
of this, is that while there has been latent speculation over the
years that China will dump US treasuries voluntarily because
it wants to (as punishment or some other reason), suddenly China
is forced to
liquidate US Treasury paper even though it does not want to, merely
to fund a capital outflow unlike anything it has seen in history. It
still has a lot of 10 Year paper, aka FX reserves, left: about $1.3
trillion at last check, however this raises two critical questions:
i) what happens to 10 Year rates when whoever has been absorbing
China’s Treasury dump no longer bids the paper and ii) how much
more paper can China sell before the entire world starts paying
attention, besides just JPM and Goldman… and this website of
course.
Finally,
if China’s selling is only getting started, just what does this
mean for future Fed strategy. Because one can easily forget a rate
hike if in addition to rising short-term rates, China is about to
dump a few hundred billion in paper on a vastly illiquid market.
Or
let us paraphrase: how
soon until QE 4?
An op-ed from RT written just a day before today's collapse. What can I say other than Russia (and RT) has a vesзed interest in talking down any potential problems in China and the BRICS
An op-ed from RT written just a day before today's collapse. What can I say other than Russia (and RT) has a vesзed interest in talking down any potential problems in China and the BRICS
Collapse that never happened: China bounces back, discrediting Western analysts
26
July, 2015
All
the voices in the US media who gave alarmist predictions in the
aftermath of China's stock market plunge earlier in July should be
very embarrassed. The aftermath of the market crash has proved
China’s economy to be highly resilient.
Since
capitalism in China is tightly controlled and not allowed to run
rampant, the population is far safer from the harmful effects of
market turbulence.
According
to the Financial Times, 55 percent of the US public is directly
invested in the stock market. The majority of these people have no
choice in the matter. They are seniors whose pensions were invested
by their employers, or they are employees whose salaries are tied to
“stock options” or other mechanisms linking them to the New York
Stock Exchange.
As
a result of the stock market’s central role in US society, when the
financial crash of 2008 occurred, unemployment almost immediately
went up to 10.1 percent, the highest it had been since 1983. The rate
of hours worked per week dropped to
33, the lowest number ever recorded. Overall, the median household
net-worth dropped by 35 percent between 2005 and 2011, according to a
Vox Media report.
Many people in the United States are still suffering the aftereffects
of the financial crash of 2008, despite the widely reported
“recovery.”
What makes China different?
Analysts
in the US media, probably basing their views on what they know about
the US economy, made predictions of catastrophe when China’s stock
market plummeted on July 8 and 9. The US press had already spent
months describing the “slowdown” in the Chinese economy as proof
of impending collapse, at the same time as demonizing China’s
President Xi Jinping for allegedly being a “neo-Maoist.” When
1,400 companies filed for a trading halt after a 30 percent drop, the
US press went into a frenzy, declaring that the seemingly invincible
Chinese economy had finally been brought to its knees.
However,
the results were very different than those predicted. Within a week,
China’s economy was pretty much back to normal. US economists were
shocked to see the country reach the goal of 7 percent
quarterly growth,
despite so many predictions that it would finally lag behind. China’s
plans for massive construction of irrigation systems and high-speed
trains were not halted. The “New Silk Road” foreign investment
programs are still moving head.
How
was it that a massive stock market crash had so little impact? How
was it that China’s market could crash dramatically, yet society
could just move on apparently unscathed? The answers point to
realities about the Chinese economy that many Western analysts are
unable to comprehend or even acknowledge.
First, only
6 percent of
the Chinese population is invested in the stock market. The Chinese
stock market is a small club for millionaires and billionaires.
China’s industrial workforce, which make up the majority of the
planet’s industrial workers, do not have their wages or salaries
tied up in “stock options.” The pensions of China’s elderly
people are also not at stake with market flexibility. Most of the
Chinese population is fully insulated from the chaos of the beloved
neoliberal “free market.”
State
ownership of industry is very widespread in China. Fifty percent of
the world’s crude steel is manufactured in the mostly
government-owned Chinese steel industry. China’s state sector
controls a great deal of banking and other centers of economic power.
Secondly,
despite a huge amount of private ownership, the classic laws of the
market studied by economists all over the world do not apply even in
China’s vast private sector.
Usually,
following a financial crash, there is widespread panic in the stock
markets, with investors rapidly pulling their money out. This did not
occur in China because the government refused to allow it.
Immediately after the crash, the government moved swiftly into
action, implementing a variety of “anti-selling measures.” The
Chinese government threatened to arrest anyone who was caught
short-selling. All major shareholders and directors were blocked from
selling stock for six months.
Essentially,
the Chinese government stepped in and prevented the natural results
of a stock market crash. Corporations were prevented from doing what
they would normally and naturally do under such circumstances. The
Chinese government gave marching orders, forced market players to do
the opposite of what they were inclined to do. The result was a rapid
economic recovery that shocked the world.
©
Jason Lee / Reuters
Keeping the “Invisible Hand” in check
In
China, capitalists are not free to invest as they choose, nor are
they allowed to move money around based on what is most profitable.
Corporations and assets are routinely nationalized, and wealthy
capitalists have even been sentenced to death for harming the public.
Last year, several employees of a Shanghai based food firm were taken
away in handcuffs when it was exposed that they were supplying rotten
meat to
clients, including McDonald’s and other major restaurant chains.
The
Chinese economy is watched over closely by a huge entity with over 88
million members: the Communist Party. It has direct control of the
People’s Liberation Army, and all government officials are subject
to its discipline. Most major private corporations have Communist
Party officials who are assigned to watch over and monitor their
activities. Sometimes these officials can be helpful to corporations.
Capitalists can often utilize the government’s assistance in order
to make more money, as this is in line with the party’s goal of
expanding China’s Gross Domestic Product. However, the Chinese
government has the ability to give direct orders to privately owned
entities, forcing them to act according to the party’s wishes and
against the dictates of capitalism’s much heralded “invisible
hand.” China’s economy is now rebounding, with the stock market
rising once again, because the Communist Party refused to allow the
market to function naturally in response to the crash.
Attempts
in the US press to blame the market crash on Chinese president Xi
Jinping are highly disingenuous. Articles that make these arguments
offer very few explanations why Xi is to blame. They merely quote
broadly worded statements from market-oriented Chinese think tanks.
If
anything, it was lack of regulations that caused the crisis. The
Financial Times reports:
“Since
they were not subject to regulation, fund-matching companies
permitted higher leverage and lower barriers entry.”
There
is now widespread investigation into the unregulated practices of
fund matching corporations in China, who may have greatly contributed
to the events of July 8th and 9th.
Xi Jinping and the rising “Chinese Dream”
While
Xi Jinping is hated in corporate boardrooms and on Wall Street, his
actions are wildly popular with many people living on the Chinese
mainland. The Economist stated:
“He
is now more popular than any leader since Mao.”
On another occasion they described him
as possessing “unusual popularity,” saying “Mr
Xi has been winning hearts with a ferocious assault on corruption.”
It’s
understandable why Xi’s “mass line campaign,” as well as his
popularization and revival of the ideas of Mao Zedong and Deng
Xiaoping, are refreshing to millions of Chinese people. Many have
become alienated and frustrated by rising corruption over the last
few decades, coinciding with the expansion of China’s market
sector. With headlines such as, “To Reignite A Nation, Xi Carries
Deng’s Torch”, the Chinese press portrays Xi
Jinping as a champion of the founding principles of the People’s
Republic, whipping China back toward building a prosperous socialist
society.
China’s
highly successful economic model should be studied by anyone who
wants to improve the living standards of the human race. When the
global capitalist economy reacted to decades of neoliberalism and
experienced a horrific crash in 2008, China continued to roll ahead.
As the world market reeled in the aftermath of the crash, China’s
Gross Domestic Product increased
by 9.6 percent
in 2008. Chinese industrial
production increased
by 12.9 percent that year. Since 2009, the wages of
Chinese industrial workers have been steadily increasing, with the
rest of society keeping up with them. In 2012, the wages of Chinese
private sector workers increased by 14 percent.
While
the Western world is consumed by austerity debates and its new
generation faces a low-wage economy, the standard of living for China
is rapidly increasing.
The
secret to China’s success can be found in the role of the state. A
powerful government, which has its roots in the 1949 popular
revolution, has the ability to keep the market under its control. In
China, the “rule of the dollar” certainly exists, but it is
secondary. It is the population, organized and directed by the
Communist Party, which ultimately has the final say in economic
matters. While capitalist investment is utilized to strengthen
China's economy, the country is spared from the difficulties
associated with the market. Capitalism exists, but it is obedient and
compliant, existing at the whim of a very strong government, with
deep roots among the population.
As
China rolls ahead, it should be clear that Xi Jinping’s “Chinese
Dream” contains key economic lessons for the entire human race.
The
statements, views and opinions expressed in this column are solely
those of the author and do not necessarily represent those of RT.
Caleb
Maupin is a radical journalist and political analyst who lives in New
York City. Originally from Ohio, he studied political science at
Baldwin-Wallace College. In addition to his journalism, analysis, and
commentary, he has engaged in political activism. He is a member of
the Workers World Party and Fight Imperialism – Stand Together
(FIST). He is a youth organizer for the International Action Center
and was involved in the Occupy Wall Street movement from its planning
stages in August 2011. He has worked against police brutality, mass
incarceration, and imperialist war. He works to promote revolutionary
ideology, and to support all who fight against the global system of
monopoly capitalist imperialism
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