OnePacificNews, July 8, 2015, Wednesday

Will this be the black swan to ruin China's party?
Will this be the black swan to ruin China’s party?

According to Bloomberg, the Shanghai Composite Index lost nearly 32% of its value over the past month, wiping out more than US$3.3 trillion in shareholder value on its way down from 5,132 points on June 8 to 3,507 points on July 8.

Add this to the unfolding problems in Greece, the Eurozone, Russia, Latin America and the wars in the Middle East and Africa, China’s stock market crash sounds like the making of a major global financial crisis tied up with geopolitics. There have been warnings in the financial media that the debt levels of the world’s second largest economy are far larger than Greece which owes a handful of creditors just over US$270 billion, according to Reuters. To put this in perspective, the Shanghai stock market crash in one month alone dwarfed the official Greek debt level by over 12 times.

Most of the losers in the Shanghai stock crash are individuals and small-time speculators who have only recently discovered the stock market, thanks to Beijing’s campaign to encourage Chinese citizens to bet their savings on listed companies instead of real estate. The tsunami of new money leaving the safety of mattress covers and bedside drawers helped propel the Shanghai index to an all-time high of 5,166 points on June 12.

In response to the crash, more than half of China’s 2,808 listed companies played dirty by suspending trading in their shares to prevent many mom-and-pop shareholders from joining bigger and better-informed players who had long exited with profits. The Chinese stock crash has also led to massive stock sell-offs in Hongkong, Tokyo, Singapore and other Asian exchanges.

Beijing has tried to stop the selling tide by ordering 21 of the country’s main brokerage firms to

  • Set up a 120-billion renminbi fund to buy shares in the largest listed companies;
  • Stop disposing shares from their own portfolios;
  • Freeze initial public offers and listing new shares.

The plunging stock index has the potential to become the most glaring symbol of a China in crisis as it struggles all at once to deal with the country’s slowest economic growth in 25 years, a nationwide real estate bubble, the rising number of public protests and labour strikes, environmental and social discontent, growing disputes with its Asian neighbours, the challenge of Islamic militants, and geopolitical disputes with the US.

Some analysts believe the stock market loss could provide the spark to finally unravel the China success story which has run largely uninterrupted for nearly 40 years. Most of the victims of the crash are the beneficiaries of the “capitalism with Chinese characteristics” created by the post-Mao communists. Thanks to the millions of loyalists who have become rich and the many more who dream of following in their footsteps, the Communist regime has remained comfortably in power in modern China. Perhaps more than any other issue, the huge financial loss sustained by this group and the threat of contagion are a great source of fear for the ruling class.

Coincidentally, the stock market crash is taking place just as China is starting to throw its financial weight around the world with good political effect. Last month, China successfully launched the Asian Infrastructure Investment Bank (AIIB) in Beijing, and followed that up with the joint launch of the BRICS’ New Development Bank with Brazil, India, Russia and South Africa in the Russian city of Ufa on July 7. The two banks along with China’s huge financial resources and economy have given the country enormous political capital on the world stage. The stock market crash is threatening to spoil the party.

Some of these issues will be discussed at a special talk given by renowned journalist and writer Willy Wo-Lap Lam at the University of British Columbia’s Institute of Asian Research on July 9.

Lam will be drawing on research from his latest book, “The Rise of Xi Jinping and the Closing of the Chinese Mind”.

Here’s an abstract:

Renowned for his coverage of China’s elite politics and leadership transitions, sinologist and veteran China journalist Willy Wo-Lap Lam is the author of five books analyzing China’s political front figure since Zhao Ziyang. His most recent book, “The Rise of Xi Jinping and the Closing of the Chinese Mind”, explores how a relatively undistinguished regional official became one of the most powerful and charismatic leaders in the history of the People’s Republic.

Dr. Lam describes Xi’s personal history and his fascination with quasi-Maoist values, the factional politics through which he ascended, the configuration of power of the Fifth-Generation leadership, and the country’s likely future directions under the charismatic “princeling.” Dr. Lam’s book has received a large volume of media coverage and reviews such as Chinese Politics in the Era of Xi Jinping and Book Review: Chinese Politics in the Era of Xi Jinping by By John Berthelsen. An interview with Dr. Lam can also be read on the New York Times.


About the Speaker. Source: Institute of Asian Research, UBC

With more than 30 years of experience in writing and researching about China, Dr. Willy Wo-Lap Lam is a recognized authority on areas including the Chinese Communist Party, public administration, foreign policy, the People’s Liberation Army, as well as the country’s economic and political reform. Dr. Lam has worked in senior editorial positions in international media including Asiaweek newsmagazine, South China Morning Post, and the Asia-Pacific Headquarters of CNN.

Dr. Lam is a Senior Fellow at The Jamestown Foundation. He is also an Adjunct Professor at the Center for China Studies, the History Department and the Program of Master’s in Global Political Economy at the Chinese University of Hong Kong.


One Pacific News Editor