Two views of the Chinese stock market crash: Willy Lam vs Chen BoOne Pacific News Editor July 17, 2015 0 COMMENTS
OnePacificNews, July 17, 2015, Friday
Two China scholars were in Vancouver the past week to share their contrasting perspectives of developments in the country. Given the country’s rise and the expansive global ambitions of President Xi Jingping, the focus on China today is no longer just for the academia.
Starting out as a journalist, Hong kong-based Willy Wo-Lap Lam, 63, has built a long and colourful career reporting on Chinese politicians and politics, interpreting Beijing’s inner intrigues for the world well before China-watching became popular. Today, as an adjunct history professor at the Chinese University of Hong Kong, Lam makes clear he is no fan of the current regime as he criticises Xi for “closing the Chinese mind” and shutting down democracy and liberalisation through his insatiable hunger for power.
Shanghai-based Chen Bo, 38, who obtained his economics PhD from the Simon Fraser University in 2008, is increasingly an insider, part of the new generation of smart Chinese who will engage the world for China and explain Beijing to outsiders. (Time to retire, Willy?) Chen is among a small army of economists advising the Chinese government on some of its most ambitious plans to reshape the domestic economy by liberalising the financial sector and expanding free-trade zones throughout the country that feed into Xi’s grand plan for global domination through the Asian Infrastructure Investment Bank (AIIB) and the ‘One Belt One Road’ (OBOR) strategy.
The University of British Columbia’s Institute of Asian Research (IAR) hosted Lam on July 9 and Chen a week later. Their talks covered many current hot topics on Beijing’s domestic politics and the impact of the recent stock market upheaval on Xi’s hold on power and his global agenda.
Here’s a summary of their comments on the recent stock market crash, which according to Bloomberg, shaved nearly 32% off the Shanghai Composite Index in the course of a volatile month. Investors in Chinese stocks in Shanghai and Shenzhen lost more than US$3.3 trillion between June 8 and July 8. Thanks to Beijing’s direct intervention, the indices have recovered significantly.
Lam views the crash — and Chinese’s huge domestic debts — as posing the most serious challenge to China’s political stability and Xi’s power grab to further the country’s geopolitical expansion.
In the absence of parliamentary democracy, Lam sees the Chinese stock markets as representing the people’s vote, and they voted to sell. The crash was an expression of the people’s loss of confidence in the government’s handling of the economy.
Chen has a more positive view, recalling the Shanghai stock index’s sharp rise from a year ago before the recent correction. According to Bloomberg, the Shanghai stock index rose from an average of over 2,000 points in June 2014 to peak at 5,166 points on June 12 before crashing to 3,507 on July 8. After the government’s intervention, it recovered nearly 13% to close at 3,957 on July 17. An investor who bought the Shanghai index a year ago would still have nearly doubled his money after the wild ride.
Rather than threaten Xi’s grip on power, Chen sees the stock market crash as a correction and a major learning opportunity for the government to better manage the economy.
“The stock market crash means the government must further liberalise, not stop or slow the reforms. It’s a good learning lesson. The crash was huge, but it’s not that serious,” he said.
As the Chinese people have only begun investing in stocks, Chen believes large price surges and falls in an immature stock market are inevitable. It’s more important that the government understand and learn how markets work now while it has time and resources to deal with problems, he said.
Chen said one of the early lessons learned is that some foreign-based short sellers working with local players have been executing “counterfeit trades”. The government will look to implement measures to curb these activities, he said.
“The crash isn’t hurting the economy,” he declared.
Lam takes the dark view that Xi is attempting to manipulate the stock market to tighten his grip on power, although it is a dangerous game as market forces will eventually prevail. The government will be spending a huge amount of resources to prevent investor losses but there is no guarantee of success.
While Xi dresses up his economic liberalisation programme as part of a larger reform programme, Lam dismisses it as propaganda.
“He is not interested in implementing economic or political reforms. Xi is just looking to tighten his grip on power,” said Lam.
Chen believes the twists, turns and wild swings in China’s economic development are inevitable and necessary as part of the country’s continued attempts to link up with the rest of the world.
So, who will have the last word? It’s likely that both will. Lam and Chen are embodiments of different aspects of a fast-evolving China, and will remain relevant in the China debate for years to come.
It’d be great to have them share the same stage for what would be a lively debate on their next visit to Vancouver.