An investor watches the electronic board at a stock exchange hall.
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When Chinese stocks lose an amount roughly equivalent to Japan’s entire market, it might be time for President Xi Jinping to do something about it. And preferably something new.
The $6.5 trillion that’s been erased from mainland bourses since a 2021 peak is an epically large price to pay for Beijing’s policies these last few years. From Covid-19 lockdowns to tech company crackdowns to glacial efforts to stabilize a crashing property market, Xi’s Communist Party hasn’t done Asia’s biggest economy any favors.
Or, for that matter, investors keen to harness Chinese growth. Among major economies, there’s no reform trade more tantalizing than China’s. If only Team Xi would kick it into a higher gear.
If successful, a pivot from state-enterprise dominance to a model that prioritizes private-sector innovation will be one of history’s most lucrative narratives for investors. Yet it remains too big an “if” for comfort in the Xi era.
At the moment, much of the chatter is about the need for greater stimulus from Xi’s government and the People’s Bank of China. As deflationary forces intensify, calls for fiscal pump-priming and monetary easing are growing in volume.
Admittedly, bigger efforts to boost gross domestic product might gain more traction than the untold billions of dollars authorities and state-backed funds have spent putting a floor under stocks in Shanghai and Shenzhen.
Yet none of these efforts would reap greater dividends than Xi getting serious about the reforms he’s promised for more than a decade now.
Stimulus and massive stock buying are mere Band-Aids. You’d think that Xi’s inner circle would notice by now that China’s big losses are in stark contrast with spectacular equity booms from New York to Tokyo. But then, Beijing officialdom might have to entertain the possibility that Xiconomics is falling flat with the biggest of the global big money.
Xi, it’s often said, is China’s most powerful leader since Mao Zedong. But sadly, he too often prioritizes deepening his control over the party and municipalities rather than economic modernization.
Yes, yes, we were all wrong 25 years ago about China becoming more western, more tolerant of free speech and increasingly transparent. Those ideas that the internet, World Trade Organization rules and capitalist euphoria would have Xi’s party on the run? We were so quaint back then.
Perhaps the best bookend here may be then-U.S. President Bill Clinton’s October 1997 trip to Beijing. China’s leader at the time, Jiang Zemin, had the confidence to do a live press conference with Clinton in Beijing, televised around the globe.
It seemed like a game-changer moment. International economists and journalists — myself included — were convinced it signaled a new, more open and swashbuckling China. In 2002, Jiang passed that baton to Hu Jintao, who largely kept China on autopilot until 2012, when Xi rose to power.
Early on, Xi talked a great game of letting market forces play a “decisive” role in Beijing decision making. But then, reform ambitions seemed to fall away. Many blame the market crash of 2015, an event that had Xi’s party reverting to a defensive crouch.
In May 2015, epochal change seemed on path. That was when Xi unveiled his audacious “Made in China 2025” scheme. It aimed to morph the economy into a high-tech Mecca for semiconductors, renewable energy, electric vehicles, biotechnology, aerospace, artificial intelligence, robotics and green infrastructure.
But two months later, a mini-crisis arrived. Between July and August of 2015, Shanghai stocks plunged more than 30% in three weeks. The slow pace of upgrades — and vague details about regaining reformist momentum— irked investors, who fled en masse.
The chaos saw Beijing pivot to old-economy tactics: cutting interest rates, shelving initial public offerings, suspending trading in thousands of listed companies, capital controls, increased leverage and letting mainlanders use apartments as collateral to buy shares.
Once the dust settled, Xi’s team throttled back on plans for structural change. Fast forward nine years, Made in China 2025 remain a work in progress, at best. And foreign investors’ ability to bet on Chinese shares has far outpaced moves to build a more dynamic economic system and better capital markets.
The slow pace of increasing liquidity and transparency, strengthening corporate governance, building a trusted credit rating system, devising robust hedging tools and reining in a sprawling state sector is now dawning on investors. So much so that Chinese stocks have lost the combined gross domestic product of the United Kingdom and France.
The lesson here is that Xi must treat the underlying causes of China’s economic funk, not just the symptoms. As Japan taught us, throwing money at an economy traumatized by plunging property values and deflationary pressures isn’t enough.
Given China’s weak price dynamics, some well-targeted stimulus is understandable. But it’s far more important that Beijing go big on leveling playing fields, recalibrating growth engines and building a trusted market infrastructure. And with household demand lagging, it’s time Beijing created robust social safety nets to prod consumers to spend more and save less.
If not, China’s doddering may lead to even bigger stock losses that revive debates about whether the place really is “uninvestable.” Xi has the power to change the narrative -– and stop the bleeding. With any luck, this latest bout of market turmoil reminds Team Xi that time isn’t on Beijing’s side.
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Publish date : 2024-09-12 22:49:00
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