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Chinese Communist Party

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China: the Dead Cat Bounce?

A few weeks ago, at the height of the panic in the Chinese stock markets, a sour joke was doing the rounds: “Last month, the dog was eating what I eat. Last week, I was eating what the dog eats. This week, I think I’ll eat the dog.” A lot of people have lost a lot of money.

The Chinese governent is permanently terrified. It is terrified of climate change, of slowing economic growth, even of a fall in the stock market – of anything that might cause the population to turn decisively against it. When you are running a 66-year-old dictatorship, and your only remaining credibility in the public’s eyes is your ability to keep living standards rising, any kind of change is frightening.

How terrified is it? Consider its reaction to the recent sharp fall in the two main Chinese stock markets. China has a capitalist economy, albeit a highly distorted one, and stock markets are a normal part of such economies. They go up, they go down, and normally governments do not intervene in the process.

The Chinese stock markets have recently been on a roller-coaster ride. After treading water for years, prices exploded in June 2014. Over the next year, there was a 150 percent average rise in prices on the Shanghai Composite exchange, and almost 200 percent on the Shenzhen. Obviously this was not sustainable, especially since growth in the real economy has been falling for years. A “correction” was inevitable.

It came with a bang, on 12 June of this year. Since then prices have fallen 30 percent on the Shanghai market, 40 percent on the Shenzhen. Around $4 trillion in paper values have been wiped out – but so what? Chinese stock prices are still far higher than they were a year ago. Indeed, at an average of 20 times earnings they are still overvalued by real-world standards.

Why would any government intervene over this? Some investors will win, some will lose, and it will all work itself out. But the Chinese government intervened in a very big way. First it cut interest rates to the lowest level ever. When that didn’t stop the slide in prices, it banned large investors (holding more than 5 percent of a listed company’s shares) and all foreign investors from selling their shares for six months.

It encouraged around 1,300 Chinese companies – half the stock market – to suspend trading in their stocks. It forbade any new listings (IPOs) on the markets. It even ordered a state-backed finance company to make new loans to people who want to make bigger bets on the stock market than they can afford.

Anything and everything to stop the prices from falling, and lo! They did stop. Last week, prices even rose a bit.

This may just be what traders call a “dead cat bounce” – if the price falls from high enough, there is bound to be a little bit of a bounce at the bottom – but that is mainly of interest to Chinese investors. The interesting question for the rest of us is: why did the Chinese Communist regime do all this?

Because there are 90 million private investors in the Chinese stock markets. They tend to be older (two-thirds of them didn’t finish high school), they have been betting their savings on the market – and according to state media they have lost, on average, 420,000 yuan ($67,000) in the past six weeks.

That would be no problem if you were already in the market a year ago: you would still be well into the black. But a great many of the private investors piled in very late in the game – 12 million new accounts were opened as recently as last May – and they have already lost their shirts. They would have lost their skirts and trousers too if the government did not stop the collapse in prices.

So the regime intervened. This may be because the Chinese Communist Party loves the citizens so much that it cannot bear to see them lose. It is more likely to be because it is frightened that those tens of millions of stock-market losers (who were officially encouraged to invest) will start protesting in the streets. Whether the Chinese regime’s power is secure or not, it certainly does not FEEL secure.

This latest government action is part of a pattern that extends back to the global bank crisis of 2008, after which China was the only major country to avoid a recession. It did so by flooding the economy with cheap money. So few people lost their jobs, but the artificial investment boom created a bubble in the housing market that is now starting to deflate: millions of properties lie empty, and millions of mortgages are “under water”.

Sooner or later, this game is going to run out of road. The risk is that China’s road ends where Japan’s thirty years of high-speed growth ended in the late 1980s, with a collapse to 2 percent growth or less and a quarter-century of economic stagnation. China is around the thirty-year point now, and its regime is doing all the same things that the Japanese government did just before the collapse there.
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To shorten to 725 words, omit paragraphs 7 and 11. (“It encouraged…afford”; and “That would…prices”)

How Many Chinese Are Enough?

19 October 2007

How Many Chinese Are Enough?

By Gwynne Dyer

Even before the 17th congress of the Chinese Communist Party began last week in Beijing, it was clear that at least one policy was not going to change: the one-child policy. “Because China has worked hard over the last 30 years, we have 400 million fewer people,” said Zhang Weiqing, minister in charge of the National Population and Family Planning Commission, earlier this year.

In the eyes of the policy’s supporters, that justifies the infringements on people’s freedoms that are involved. True, a few women (or a few million women) were dragged off to have forced abortions in the bad old days, but now it’s much more civilised. Besides, the end justifies the means, doesn’t it?

Not having 1.7 billion people now (and not having over two billion in twenty years’ time) is clearly a desirable outcome for China. Even with decades of high-speed economic growth, there is a limit to how many people China can feed and clothe and house. But did the regime really have to impose such a draconian birth-control policy in order to stay within that limit?

The doubters point out that the Chinese government’s “soft” birth-control policy in the 1970s — encouraging later marriage, fewer births and longer birth intervals — brought the total fertility rate (i.e. lifetime babies per woman) down from 5.7 in 1970 to 2.9 by 1979. That is one of the fastest drops in the birth-rate seen anywhere at any time — and it happened BEFORE the “hard” one-child policy was introduced in 1980.

Critics also point to the Indian experience, where an early experiment with enforced birth-control measures in the 1970s created such a backlash that nobody has dared to suggest it since — and yet, they argue, India’s birth-rate has also plummeted over the subsequent generation. From a total fertility rate of 6.3 in 1960, it has fallen to only 2.8 this year. The famous “demographic transition” from high birth-rate, high death-rate societies to longer-lived communities with lower birth rates still works its magic eventually. But it does take its time.

Compulsion does make a difference. India and China both started out in the 1960s with very similar fertility rates, and at that time China’s population (648 million) was much bigger than India’s (433 million). But by 1980 China’s fertility rate was already down (without compulsion) to the rate that prevails in India today. With compulsion, it has fallen even further, to little more than half the current Indian fertility rate. So China’s population will level off at around 1.4 billion by 2020, while India’s will go on growing to at least 1.7 billion.

How much difference does that make in practice? A lot. If China had taken India’s approach, its population would probably reach 2 billion before it stopped growing. For every two Chinese in the country we know, there would be three instead. That could easily be the margin between success and disaster.

China’s economic miracle (ten percent growth for the past two decades) skates permanently along the edge of environmental calamity. Just breathing the air in Beijing is the equivalent of smoking twenty cigarettes every day. The country has lost almost 7 percent of its farmland to development in the past decade. Dozens of cities are already experiencing severe water shortages. It’s bad enough with the present population of 1.3 billion. What would it have been like without the one-child policy?

In large parts of the world, it is not politically acceptable to suggest that the sheer number of people can be a problem. Population control is startlingly absent, for example, from discussions about how to minimise climate change. It’s partly out of concern for the religious sensibilities of some people, and partly because of the human rights issues that it raises.

In addition to the human rights abuses implicit in the one-child policy, there are grave demographic implications. One is the shrinking number of people in the working-age population who have to provide for a relatively large aged and retired population. Another, specific to societies where sons are seen as far more desirable than daughters, is a wave of selective abortions and female infanticide.

This is hardly unknown in India either, but in China, because of the one-child policy, it has taken on the dimensions of a plague. Girls are in such short supply that it is estimated that by 2010 there will be 37 million young Chinese men with no prospect of ever finding a wife.

There have been relaxations in the one-child policy over the years — ethnic minorities are largely exempt from the rules, and rural families whose first child is female are allowed a second try — but almost two-thirds of Chinese families really do have only one child. And the fact that the government is determined to retain the policy suggests that it intends to bring the population down in the longer run, whatever the collateral social damage.

Most ecologists would say that China is well beyond its long-term “carrying capacity” even with its present population. Maybe the government is actually listening to them. Maybe it also knows that climate change will not be kind to China. There are things worse than a one-child policy. Famine, social disintegration and civil war, for example.

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To shorten to 725 words, omit paragraphs 10 and 11. (“In addition…wife”)