The Muck Starts Here: China finds state capitalism difficult

by Barry Hastings

China’s first venture intMuckrakero state-directed capitalism has stunned that nation, and badly rattled and angered President Xi Jinping. Many investors in the (relatively) new Chinese stock market (a very small percentage of China’s 1.3-plus billion people) are referring to the recent steep tumble (more than 33 percent) as China’s “Black Friday.” The rapid descent followed a seven-year high only three weeks earlier. Over the previous year, the market’s value had increased 150 percent.

The Chinese leader had been in Europe, conferring with leaders there on trade and other matters. He returned home to find the market’s investors and directors in a panicked tizzy. He was (reportedly) angry when he met with movers & shakers. His anger fired several new attempts (by market big shots) to reverse negative trends throughout the nation’s financial structure.

One was formation of a $19 billion (American) “stabilization fund.” They aimed to push value of the market up. It worked — briefly, but was immediately followed by continuing decline. Now, more than 1500 companies (the list grows rapidly) have suspended trading.

He also (apparently) ordered investment companies into a buyback of stocks which they were, likely, reluctant to do. Of course they had no choice in the matter. This move was an attempt to prevent default on debts of those who’d borrowed far too heavily for further investment in the full year-long, and big, bull market.

The Chinese stock market was born some seven years ago. It was conceived, by the nation’s leaders, as a means to build larger (and ever growing) companieLarry Hamps, while reducing “malignant competition.” They believed it would increase efficiency in state-owned business enterprises (of which there are very, very many). This also appeared to work for a time, driven by government-controlled media “cheer-leading” — mostly appealing to the country’s patriotic sentiment. But now, people are very wary. And this part of the story continues.

Another problem he faced on arrival, was a rising tide of ruined-investor suicides and failed (or prevented) attempts. He solved the problem, cosmetically at least, by ordering state-owned media (the only media) to cease reporting them. But China, like the rest of the world, can’t really keep much hidden in the digital age. Yet many people multiplied their personal wealth repeatedly during the boom, pulling out before, or early on in the bust. But thousands of too greedy small-timers, operating on collective-family funds, ruined themselves and their families.

This also happened with investment clubs, and other, looser, collaborative groups. The whole boom was fired by merger of two large, competing, state-owned businesses. The new company’s share-value rocketed-up to more than six times its starting value during the boom. The market collapsed in a matter of several days.

Some people (including myself) wonder what impact China’s recent aggressive military expansion (close to neighbors who rightly fear her) in the South China Sea, and reactions of the western powers and those neighbors, has had on investors. Not small, I’d bet.

This will leave a very bad taste in the mouths of potential investors for a long, long, time. The Chinese government is trying to micro-manage the market, having not yet learned that in high finance, ‘stuff’ happens. If this slide were to continue, it must have a deleterious effect on market investors, world-wide. (See many articles in the Financial Times, July 8, 9, for much more information.)


John Kerry, like Hillary Clinton, and several other recent Democrat Secretaries of State, is a real workhorse. Tireless. Problem is, this Iran agreement (at the other end) will require close and constant concern, for a long, long time. I have no illusions about Iran. (“When I was young,” wrote Napoleon Bonaparte, *I had illusions. I got over them fast.”) Me three.

I’m getting really sick to death of these damned Republicans who bitch about danger to the nation, but have tied our most important shield, the military, to the sequester ball and chain. Our military’s current top leadership is not very good (and hasn’t been for far too many years). And the Congress is hopeless  — their “going-along” with Shrub is what got us into this 14 billion dollar a month swamp. But take heart, better men are about to take over at the Joint Chiefs of Staff in D.C.

At long last, a senior U.S. Coast Guard vice-Admiral is taking over at Homeland Security’s Transportation Security division, Shake ’em up and shape ’em up, Sir, they badly need it. I’ve been calling for the move for at least six, seven years. Problem is, just about every law enforcement division of the Department has taken Sarah Failin’s advice and gone rogue. Bigger danger to us than to our many enemies, Don’t hear much about John McCain’s “way to lose the Presidency” these days, do we. (She was certainly one of the two or three most ignorant folks on a presidential ballot in my lifetime, and maybe in the nation’s.)

Do ya remember her claim (before many reporters) “Paul Revere rode to warn the British not to march on Lexington and Concord, because American militias knew they were coming.” With she and a fading John McCain in the top two offices, we’d surely have been in World War III by now, and likely been being whipped, just like now. And can you imagine the South Carolina lawyer (and self-anointed military expert) Unsey Whimsey as Attorney General. The sculpture of Lady Liberty, in the department’s entryway, would still be wearing the modest clothing ordered up by John Ashcroft, another Shrub Administration derelict.

Enough. Softball, next time.

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