China in Focus

Market Trends - 15/08/2018

China has and continues to be a difficult challenge to understand politically and economically. She maintains the characteristics of a capitalist economy though is highly centralized and resembles the command economic style of the old orthodoctical and orthopractical Soviet system. Politically the nation is governed by a dictatorship dedicated above all to maintaining its iron grip broaching no dissent or opposition. Not what we might characterize as a likely candidate for the world’s second largest economy. Analyzing the finances and economics of such a creature requires unusual tools and a different approach to using the familiar tools in our bags. A free market where the citizens and leaders participate freely and in what they consider to be their best political, financial and economic interests behave in patterns we are able to recognize and predict with relative certainty. Not so when the political, financial and economic behavior is manipulated to serve the ruling party first and foremost. The economy gets distorted in strange ways. Indicators are often rigged to make the ruling elite’s performance appear “better” (in a capitalist context) than it is.

Two of the most prominent examples of this difficultly concern the financial system of the country as well as the infrastructure development the country follows. China’s infrastructure development is nothing short of miraculous. In living memory the nation has progressed from a state where all its citizens, were merely subsisting on a meager diet, wearing one of three different colored but identical Mao suits and riding identical black bicycles. Today it has the outward appearance of a prosperous and highly developed economy. Some of the world’s most advanced infrastructure now resides in China alone. The world’s only working maglev line transports people from Shanghai to its airport. It has more high speed train lines than Japan. BUT,…as President Xi removed the term limits imposed by Mao’s successor and economic reformer Deng Xiao Peng and installed himself as lifetime “helmsman” the patina of success of the Chinese economic miracle is called into question. Despite Xi’s determination to reverse the traditional bugbear of China, corruption, it seems to us that the weaknesses of one party rule are beginning to be thrown into relief. The banking system that since 1949 has served first and foremost the interests of the party cannot bear the load of its non-performing loan portfolio made largely to inefficient and corrupted state owned enterprises. The vast overproduction of housing created by party favored contracting and financing is weighing down the economy. Recent economic statistics are beginning to reveal significant slowing in macro-economic growth required by the mere natural growth of an enormous population with constantly rising expectations for further prosperity.



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