It was about time for China’s recurrent market turmoil, the second this year, since they are still in their agricultural year 2015. According to the Wall Street Journal, everybody else’s New Year started with China’s “shortest trading day in its 25-year history”, just 29 minutes. On Thursday Chinese stocks plunged by more than 7% forcing officials to halt all trading for the rest of the day –and it was the second time this week. Whether or not this is gonna have great consequences for the rest of the world is uncertain, but it will probably just be anecdotic since there is not enough foreign investment in the Chinese market. The Great Fall is yet to come.
Although the expectations that the yuan will depreciate further may be behind this new fall, Chinese market turmoil has been blamed on capital flight from the country, and it is very likely that new measures to close economic frontiers are going to be implemented after this. Mr. Xi correctly foresees the results of a rather open policy towards what the Middle Kingdom still considers to be “foreign devils”, and thus he was enhanced a number of restrictions to avoid China go all Soviet Union over some Chinese version of their glasnost and perestroika: textbooks are being reformed to remove Western influences, students are being discouraged from studying in foreign countries, foreign websites are being slowed within China, and booksellers with no Chinese nationality are being kidnapped by the Communist Party, a fact they have actually boasted about in their Party-sponsored media. So what’s next? To avoid Chinese money to flee the country.
In so many ways the decisions taken by Chinese officials –to close, so to speak, the Chinese stock– are very Leninist in their essence. We all know that obnoxious idea libertarians use to put on Lenin’s lips: that reality must be wrong for not conforming to your beliefs. Thus, if the stock goes wrong, just closed it and it will stop existing. Oh, what? The economy is still running? Don’t be a bigot!
As a matter of fact the whole thing happened because the new introduced circuit breaker –measures used by stock exchanges during large sell-offs to avert panic selling– were set at 7%, a rather low number if we compare it with Wall Street’s 20% that, basically, shows how confident Chinese authorities are in their economy –they really seem to believe Communism works.
So what are they gonna do about that? Well, what all socialists do: “China’s central bank responded Thursday by announcing it would pump $10.6 billion into the financial system. That follows an injection of $20 billion on Tuesday”. Because it worked so well the last time, right?
Welcome to the benefits of a planned economy. You’ve warned.