The politics behind China’s stock market turbulence

  • 27 August 2015
  • From the section China
File photo: New members of the Politburo Standing Committee, from left, Zhang Gaoli, Liu Yunshan, Zhang Dejiang, Xi Jinping, Li Keqiang, Yu Zhengsheng and Wang Qishan stand in Beijing's Great Hall of the People, 15 November 2012
Image captionPresenting a public united front is key to the Communist Party

One of the most extraordinary things about the world’s number two economy is that when it faces a crisis, the leadership carries on in public as if nothing has happened.

Decisions which affect the fate not just of 1.4 billion people in China but as we now know, the rest of the world as well, are made in secret by a handful of men.

This week, China’s top political leaders have made no mention of the crisis, flagship mainstream media avoided touching on it, and government censors constrained discussion on social media within firm boundaries.

‘New normal’

Does this matter? It is certainly different from any other major economy where the causes of such a crisis and competing solutions would have been thrashed out day in day out for the past two months.

Stepping back from the stock market turmoil, the central challenge for China’s policy makers is whether they can build a prosperous advanced economy with sustainable long term growth before the old-style investment driven economy grinds to a zero growth catastrophe.

Media captionMr Qi invested has lost £40,000 ($60,000) in shares after investing £100,000 in May

The government has loudly committed itself to a “new normal” which necessitates a range of painful but unavoidable market reforms. But no large authoritarian country has ever managed the move to high income status. So if China did achieve such a feat, it would be setting a precedent and making history.

Not for the first time, Party members and many other Chinese citizens may well retort, adding that China’s leadership deserves credit for its management of the economy over the past three decades of reform. But the stock market crisis has demonstrated that the way Chinese politics relates to its economics has very specific consequences and not all of them are beneficial.

First is the need to find scapegoats. Because of leadership paranoia about anything which approaches criticism of China’s political system, when things go wrong there has to be a villain and that villain has to be identified quickly and publicly.

So this week has seen a number of high profile investigations of market manipulation as well as the detention of a financial journalist for allegedly “fabricating rumours” which is often shorthand for facts which happen to be politically inconvenient.

Wise and fair?

But it is a matter of public record that government, central bank, regulators and propaganda chiefs all boosted the bull market in the early part of this year, and in any other economy, there would now be a discussion about the performance of each of them.

Was it wise to pour leveraged funds into such an inexperienced market at such an astonishing rate? Was it well-judged to deflate a credit bubble by creating a stocks bubble? Was it fair to make small investors feel paper-rich in an effort to get them to save less and spend more?

File photo: Shoppers queue to enter a shop of French luxury brand Louis Vuitton in a shopping mall in Shanghai, 14 June 2010
Image captionChina has been keen to boost consumption

Instead of targeting a handful of brokers for insider trading, a different politics would allow questions about the systemic corruption risks on the markets and about how to make the regulator independent and transparent. TV news bulletins might hear from Chinese citizens who’ve lost their savings and have their own views on who is responsible.

The taboos about touching on anything systemic, anything relating to transparency or vested interests make it hard to have a rational discussion about what caused the problem or how to put it right.

A second feature specific to Chinese politics in a crisis is the determination not to let the facts get in the way of the preordained script and to reinforce unity around that script.

Throughout the stock market plunge, the main evening news programme on national TV has focused on anything but, typically leading with long reports on political leaders appearing together at various work forums and making encouraging speeches with no reference to the elephant in the room. A public united front is an article of faith for the Communist Party.

China’s economic slowdown


China’s debt to GDP ratio

$28 trillion

Debt has quadrupled since 2007

  • 0.25% cut in key lending rate
  • 5th interest rate cut since November
  • 7% China’s growth target for 2015

In the mid-1980s, divisions at the top over how to confront economic problems played a part in events leading to the student democracy protests of 1989. Many in the leadership still blame those divisions for the massacre which followed. “United we stand, divided we fall” is a Chinese Communist Party tenet of faith.

Due to the enormous secrecy of Chinese, it’s impossible to know exactly what’s going on, but there are signs of serious divisions. The bungled stock market intervention of early July was a clear departure from the market reform agenda that Premier Li Keqiang had set out at the beginning of the year.

A fortnight ago, an important commentary in the flagship People’s Daily criticised retired officials “who continue to use their influence to intervene in crucial decisions long after they have retired”. And earlier in the year the same Party mouthpiece launched a broadside against factions, pointing out that throughout Chinese history, factional politics had brought down many mighty dynasties.

The finance minister Lou Jiwei issued a blunt warning recently: “We don’t have a lot of time left and the only way forward is reform.” He was not talking to you or me.

An investor looks at an electronic board showing stock information of Shanghai Stock Exchange Composite Index at a brokerage house in Beijing, August 26, 2015

Don’t forget the context for decision making here. Even before the economic woes of the summer, the anti-corruption campaign had turned elite politics into a blood sport in which many top politicians, bureaucrats and generals found themselves behind bars.

The harder the Party works at public displays of unity, the harder it is to believe in that unity.

Some of the country’s most powerful families have been hurt in the anti-corruption campaign and the market reforms ahead will hurt their business empires further. The stock market crisis and the handling of this month’s currency devaluation have damaged the credibility of economic policy makers at a time when the sapping of confidence in China’s growth prospects make decisions about how to handle long term reform even more critical.

The absence of public discourse produces a parallel universe with political and business elites awash with rumours about factional vendettas and power plays.

Underlying all else is the knowledge that China has reached an important moment of decision. When the economy was growing fast, there were no hard choices between core economic and political objectives.

File photo: Roads and Shanghai's skyline, 30 September 2014
Image captionChina has experienced immense economic growth over the past three decades

But now that growth is slowing, the conflict is stark between the economic imperative of freeing up markets for the sake of China’s future and the political imperative of iron control for Party survival.

Yes the Party wants markets because it knows they will allocate resources more efficiently than the state, but when the chips are down it wants total political control more because it fears that anything less will challenge its rule.

Behind the walls of the leaders’ compound in Zhongnanhai, there are many views on how to square that circle on any given day for any given policy decision. But the constituency fighting for independent regulators, transparent markets and brave financial journalism is not strong.

Now that the mesmerising stock market bubble has burst, those outside Chinese borders will mull the fundamental question about whether China can build an innovative market economy under a brittle one party state. But that is a question that those inside China are not invited to debate





We told you this too shall pass. The markets are taking bargains into account as the big boys come back from vacation. We told you.

The lift back of the American markets is also global WEALTH SHIFTING back into America as the safe harbor from the Global storms. Safe port for parking wealth.

This trend is going to accelerate for years now. The trend OUT of America was generational. Now with commodities plunging and the cost of raw goods so low – the profits by American firms benefiting from the recent on going DEFLATION is gigantic. The lower fuel cost more in line with markets versus speculation the real TRUE floor costs – will foster added spending power in the EU and America’s. This keeps recovery in the America’s and EU back into tracking for years to follow.

Asia will adjust over a decade – it will take years to sort out the NEW ASIA ORDER. No one can predict this final resting place financially. Indonesia, the Fourth Largest Economy, India soon to be number 2 in the world – and Japan number one or 2 depending on China will all land in their respective new orders. It will be some time before that landing is known and more shake ups in Asia are highly likely before the new reformed models fully develop. Give it time. Risk off for Asia is the mantra now and invest back in Asia in 2020 but not before is our take on things. You decide for yourself.

America is the place to invest today. And America will lead the economic systems of the world increasingly for the rest of the century. The fly wheel of American inventiveness is unstoppable. The mineral wealth of just oil now rising to an export item again – is unstoppable. America’s fiscal wealth is now under written by our food and oil wealth and our productivity in goods and trade. Our internal buying is so strong it remains unmatched as an economic back bone mature by a superior SYSTEM to other models.

As more and more nations adopt to the BETTER MODEL their own wealth will rise …we are today a nation of entrepreneurs in the Global Village. Those who execute NATIONAL WEALTH by policies to rapidly grow Entrepreneur Class in nations – win. Those who advent policies to make it costly in time and money to ramp up new ventures – loose in their antique and failed model.

CEO SPCE consults to national leaders to develop policies that work. We want to help your nation. Check out CEO SPACE INTERNATIONAL on line Forbes # 1 2015 resource in this key area – worth the click time. See a video.

We will keep a light on for you. This is not the end of anything it is the adjustment to the new beginning – watch as the market rebounds coming up and you’ll share our excitement for the WEALTH SHIFT as all our blogs have been reporting to you. Trillions are moving out of Asia and moving back to America – can’t you feel the wave? You might wish to put your surf board into that wave….I would.

Berny Dohrmann – Chairman CEO SPACE





Wiped out in just the Standard and Poor 500 – index – 2.1 trillion of wealth in just six trading days. In fact the US Economy now looks much better and stronger than the stock market is appreciating. The 600 point ROAR BACK on Weds gave markets confidence in the USA and noted our prediction bargains are only alive in the USA and the world IS going to buy them UP. The WEALTH SHIFT into the USA is the big winner from the melt down in Asia which is unfolding and far from over yet.

When you add the other markets such as the DOW and the trillions lost globally this crises is no small factor. However we believe this is a PASSING ENERGY and will move out of the markets like a storm cloud as overall stability of world trade ( itself down to record declines over the past four years- leaving one to wonder is globalization peaked out now for trade itself )?

The market is sorting out WELL SHIFT to the most integrity transparent markets with the USA leading in these categories. We see the influence and Wealth Shift to the USA as so deep that the prime authority of USA ECONOMICS will continue to lead the world….into the coming decade.

Berny Dohrmann -Chairman CEO SPACE





China has had to inject enormous resources into its banking sector to assure liquidity remains adequate. Hundreds of BILLIONS are leaving China from all over the world. Many to never return. Others are repositioning risk which is another set of 100’s of billions leaving. Millions upon millions will go unemployed in China before China New Years. A panic creating runs on now illiquid banks would close the Chinese banking system in one day – just as it did in Greece. Will this panic set in as the people realize the banks are out of money?

Credit is drying up. Loans are being called. No one is giving out new loans. The lubricant for the Chinese miracle – low cost credit – is now evaporated. The freeze up of financial machinery is mushrooming now as you read. Liquidity is drying up. There now is a capital crises in China effecting systemic liquidity.

Those at the head are themselves panicking. They make one mistake and the system collapses. China could go bankrupt. China could enter a period of REVOLUTION. The stability China prides itself on first and foremost is now shattered in a single week and this lost stability is not soon to return to China and its people. Failed policy is the core reason – always is.

Berny Dohrmann – Chairman CEO SPACE INTERNATIONAL





The Asia crises is a monetary reset for Asia nations. Their economic planning, their leverage, their market intervention policy, their currency real value, their trading confidence index’s.  There is a WEALTH SHIFT moving along globally. Enormous Wealth is returning to the USA in capital, investment, asset gathering, safe harbor investing, and opportunity seeking. There is a major WEALTH SHIFT out of China ( that is permanent ) and into neighbor nations where percentage of China production and business is now SHIFTED and will never return to CHINA. The route of customers out of CHINA and into neighbor nations is a enormous global WEALH RESET.

How does all this effect one entrepreneur during business with other entrepreneurs ? From this time through 2017 the cost of EVERYTHING will be lower. There will be MORE spare money in consumer hands. From Gasoline to paper products from plastique and oil based products the price is falling and plunging and still going down more. This will be good for consumer spending and good for entrepreneur growth.

Where big business is most effected by the ASIA CRISES the smaller entrepreneur and professional is the shock absorber in the economy. This sector of 34 million small business owners and professionals in North America alone, are insulated from the effects of the Asia Wealth Reset. The main item to effect this category is lower prices for everything the business needs. Deflation has taken root globally. There is no inflation. There is rampant deflation of values – a WEALTH SHIFT.

Entrepreneurs should enjoy a record year end, a record consumer buying outlay, a record profit margin as raw material cost fall, and growth. The period between now and Dec 2017 should be the most sensational economic entrepreneur boom period in ten years. This is the time to invest in growth -to risk WINNING – and to not hold back. The opportunity is NOW and its risk on venture space.

Berny Dohrmann Chairman CEO SPACE INTERNATONAL