Watching the Dow in a one thousand-point freefall last night was more an indication of why China’s confused mix of Communism and Capitalism must eventually fail.
The people being hurt were the Chinese middle class that was coerced by its Government into borrowing money and spending life savings to buy the very shares that took the biggest hits.
Is Beijing losing control?
Well, it has certainly thrown its hands in the air and walked away from the turmoil, so it may be finally ready to allow market forces to interpret how it sobers up from a giddy 20 years of unsustainable growth.
Beijing pumps up its Shanghai Exchange like we pump up our currency, that’s why no-one takes any notice of it, it isn’t a fair indicator of the Chinese economy.
The billions Beijing threw at failing stocks was meant to present a deceptive picture for investors (and a little face-saving internationally) but instead the giant Panda finished up with two black eyes and appearing pissed on fermented cane juice.
But there will be no recession for China, only a correction. It’s a correction that the West has always expected yet has typically overreacted to.
Within the decade China will overtake America as the world’s largest economy, of that there is no doubt, despite the amateurish way it is handling its bourgeoning growth.
It has developed massive housing and infrastructure beyond its fledgling middle class demand and now it must back off, take a breather, and pause while the middle class catches up to expectations. Its trading partners must also take a breath.
When the US coughs we all get pneumonia but when the Panda farts the rest of the world shits itself, but for no justifiable reason.
China still holds much of the US debt and, as I have written here before much to the chagrin of readers, the US will recover from the Obamas and Bushes of this world because of its massive middle class economy and rural protectionism.
The US may have only one fifth the population of China but that one fifth is all demand whereas China’s middle class is still in transition. And there is no way double-digit growth rates can continue unchecked without parallel rates of domestic demand.
The world, including China, is suffering under unprecedented debt. Eastern Europe is all but insolvent while coping with millions of (mostly genuine) Syrian refugees. The oil price has tanked to where exploration is on hold. Russia’s oil pipeline to Western Europe is being secretly tapped and Ukraine and NATO countries aren’t paying their bills while Obama continues with Russian sanctions.
Everyone owes money to everyone else and in a way that’s healthy and certainly not the conditions that make for another sub-prime rate inspired GFC.
And if another GFC does arrive one day, fools like Kevin Rudd will be well and truly dead.