Commentary
Earlier this month,
Liu He, China’s vice premier for economic affairs, stepped up to offer some nebulous assurances of “reforms” to try to reverse what had been an earlier rout in Chinese equities. Western investors bought the messaging and the markets recovered, but Liu’s assurances are illusory.
Liu’s intervention was necessitated by what Bloomberg called “
panic selling” on March 13. On that day, the Hang Seng China Enterprises Index closed down 7 percent, its biggest drop since November 2008. The new Hang Seng Tech Index, started in 2020, fell 11 percent. The sharp declines were prompted by fears that global investors might inflict the same punishments on China that they had on Russia over its invasion of Ukraine. J.P. Morgan had evenly called Chinese equities “
uninvestable.” That call helped send Chinese equities into the tailspin that Liu tried to reverse with his “happy talk” about “reform.”
The extent of Liu’s assurances isn’t clear. They were vague at best.
According to the
Financial Times, Liu said he would take steps to “‘boost the economy in the first quarter,‘ as well as introduce ’policies that are favourable to the market.' He didn’t elaborate on what specific measures would be taken.” However,
Alicia García-Herrero, a senior fellow at
Bruegel, the European economic think tank,
wrote last week in the Financial Times that Liu’s measures would include allowing Chinese companies access to foreign markets, predictable and transparent regulation of China’s tech companies, and stimulus to achieve the government’s 5.5 percent growth target. But, again, there were no specifics to achieve any of those three policies; just the vague rhetoric of a leader trying to halt a market meltdown.
So, ultimately, investors’ fears about investability in the Chinese Communist Party (CCP) rogue regime were—and remain—well-founded.
As Chinese leaders mouth all the “right” platitudes about peace and harmony in public statements, China cowardly
abstained in the U.N.’s overwhelming vote condemning the Russian invasion. And when President Joe Biden spoke with China’s Xi Jinping about the Ukraine–Russia crisis, the Chinese leader prefaced the conversation by sailing the Chinese aircraft carrier
Shandong through the Taiwan Strait shortly before the call.
Xi’s message was clear: “Watch your back, Biden. We will do what suits our interests, the ‘international community’ and your sanctions be damned.”
But even more broadly than Ukraine–Russia, the investing world seems to have awoken to the fact that China, under CCP rule, is little more than a criminal enterprise on a national scale.
In effect, the CCP has made China into Prohibition-era Chicago and named Al Capone the mayor. Sure, a lot of money can be made if you’re willing to overlook Capone and his cronies’ murderous side, but the money you’ve invested with the Capone gang is at huge risk. Elliot Ness and “The Untouchables”—in the form of Western-style democracies and their financial institutions, institutional investors, government pension funds, and the like—that are concerned with the plight of the Uyghurs, human rights, global warming, and the CCP’s belligerence, have all wised up to the scam and no longer wish to profit from the CCP’s illegitimate rule.
Just as investors now abhor Russia, the free people of the world no more want their children and grandchildren growing up in a world where a criminal pariah such as China under the CCP is a global power than they would want them to grow up in free-fire zones of gangland Chicago.
Liu’s “reform” promises should be taken no more seriously than the assurances of
“Easy Eddie” O’Hare, Al Capone’s attorney, of his client’s innocence. It’s the same blather about “reform” we’ve heard from the CCP for decades. A free and fair equities market and CCP control are mutually exclusive.
Consider these comments by professor
Baizhu Chen of the University of Southern California. In an article published on March 26 in
Insider about whether the yuan could challenge the U.S. dollar, Chen was quoted as saying such a challenge would require the CCP to allow free-market interest rates, refrain from currency manipulation, and develop an independent, transparent central bank.
But in a totalitarian state such as China under the CCP, where a veneer of relative “prosperity” is mission critical to maintaining CCP control over the population, those kinds of reforms are highly unlikely; it would require surrendering too much control to the vagaries of the market.
Even in the unlikely event that the CCP were to purport to adopt the kind of measures Chen suggests, it would almost assuredly be just institutional Potemkin Villages; just more artifices to fool foreign investors, the same as China’s
fake economics reports. The “real” Chinese economy—the one that enriches loyal CCP party members while feeding table scraps to the lao baixing (common people) to stave off a popular revolution—would continue to act in the same mercantilist, corrupt, and criminal fashion that it always has.
What passes for government “policy” in China is usually some mercurial diktat by CCP party bosses who are either protecting China’s own industry or the enterprise of a fellow party member. Examples are legion. On March 21, Bloomberg reported that trading in troubled Chinese developer Evergrande and its affiliates was
halted pending “inside information.” It has yet to resume. The auditor for another developer, Ronshine China Holdings, resigned and the company won’t be able to release earnings as planned. If the people running the CCP’s economic policy had been transparent, Evergrande would have been sanctioned, regulated, and likely even broken up months or even years ago.
Let’s not forget how China works: Some offense against the CCP, some product deemed to offend the party leadership, or some CEO having too high a public profile could all cause the CCP gangsters who run China’s government to deliver the same kind of bureaucratic—or physical—beatdowns on offending companies or investors that Capone’s mob debt collectors delivered on deadbeat gamblers. (Remember when Jack Ma, the founder of Alibaba, was “disappeared” for reasons unknown?
He was not alone.)
China’s CCP can be more artful in its thuggery, too. In 2016, when SABMiller Plc. was to be acquired by AB InBev S.A/N.V., China’s Ministry of Commerce (MOFCOM) concocted some regional and market segment (low-end, middle-market, high-end) analysis to throw a monkey wrench into the deal. The clear objective of MOFCOM was to protect the interests of local Chinese beverage manufacturers.
Later, when Marriott acquired Starwood, the market segment and regional analysis was put aside and the merger was approved. (I wrote about the situation
on another platform. Having only a little mind, I had naively expected MOFCOM to share my hobgoblin of consistency and apply the same rules; they didn’t. They approved the merger without comment.)
China’s mercurial and corrupt government policymaking is an ongoing and dangerous market risk. As with Russia, fund managers, pension trustees, institutional investors, and family offices should all recognize by now that there’s no honor among the CCP’s thieves. They owe a fiduciary duty to their investors, plan participants, and principals to ignore the empty promises made by Liu and extract the funds they manage from the outrageous, skittish diktats of the CCP’s leadership before their investors, endowments, and plan participants suffer the same kind of losses they suffered with their ill-considered investments in Russia.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
