What Will be the Next Stop in the Big Chinese Money Snowball?
China is an Asian giant in economic terms, but it’s really, in population terms that China is the global giant. Everyone knows the hybrid model of communist dictatorship in which capitalism has found a gap, and that has made the country scale, in just a few decades, its economic power.
And that capitalism not only found a hole in the structures of the Chinese Communist Politburo, but also found a niche in some pockets: that manna of investment money from the relocation of the West and other developed countries, in addition to the commercial conquest of their markets, it also came to the pockets of the common Chinese citizen. And precisely here lies the (to some extent) fortunate problem that we will analyze today for our readers.
The new form of incipient socioeconomic system began to break through in certain Chinese geographical areas that, like experimental areas, were used by the Chinese government at the time to conduct a field experiment, but under controlled conditions. Test pieces were made with that capitalism, which until now had been clearly seen as an enemy socioeconomic system to beat.
These so-called “Special Economic Zones” were created at the beginning of the 1980s, with the intention of being a pole of attraction for foreign capital: in fact, they were exempt from taxes and regulations. The Chinese leaders at the time understood that the global economic future was increasingly in the hands of the multinationals, and they did not want to remain isolated from them. The field experiment was considered a success and these special zones were expanded to cover the entire coastal China. The new regions, incorporated into the economic experiment already on a large scale, were powerful engines of economic growth that brought wealth and prosperity to the country.
Leaving aside political-social reforms, the objective of this economic transformation was none other than to move from a planned economy in China to a market economy. And what if they succeeded, since, today, about 90% of Chinese industrial production is in private hands: something directly unthinkable when this transformation took its first steps shortly after that collectivization of the Chinese economy. Dictapitalism was born.
And this economic opening, derived from the planned transformation from official instances, has brought great benefits to the well-to-do classes of the country. But the rain of money has also ended up in the most popular classes. These humbler classes, which can now be classified openly as middle class, have ended up seeing how their well-being, and more specifically the income per household, has increased significantly until reaching (in its urban version) more than 31,000 yuan per year in 2015. This figure is especially significant when compared to the little over 1,500 yuan in 1990 for the same indicator.
And it is precisely at this point that the risks of the central issue of today’s analysis originate: in that characteristic of “popular” Dictapitalism. Where the “popular” acquires a special relevance in a country of more than 1.3 billion inhabitants, with a large emerging middle class.
The popular problem that emerges from a middle class with economic power
An Achilles heel of popular capitalism is precisely its very essence: when a broad sector of society acquires economic and investment capacity, it becomes extremely vulnerable to panics and collective euphoria. And these panics and euphoria affect (and spread) much more easily between a broad middle class and, unfortunately, often with little economic training (if not nonexistent in too many cases).
That is precisely one of the great motivations of these lines, that of contributing a humble grain of sand in a healthy and necessary dissemination and economic reflection, that helps translate the economic capacity of the middle class into sustainable socio-economic progress. And this must inevitably come from the hand of rationality and economic formation of more (and also less) popular classes, even from the same educational system, because for example that of “the prices of the floors never fall” I refuted openly to people who came from all social strata.
In the case of the Asian giant, the proportions of its population, its aggregate saving capacity, and its aggregate investment capacity are really huge. That is why the untamed nature of popular capitalism becomes a particularly serious problem for the authorities of the red giant (and obviously, by extension, also for international markets).
In their hands is the titanic task of stabilizing their socioeconomic system before the lurches of spontaneous capital flows that the population consciously or unconsciously provokes. And as has been demonstrated in recent years with the bubble of the Chinese stock markets, the Chinese real estate bubble, or other examples, this is also a problem even for an over-regulated and strongly economically intervened country such as the communist country.
And the big snowball of Chinese capital is currently heading towards …
As I mentioned before, back in 2005 we saw a significant upsurge of the bubble in the Chinese stock markets. It was undoubtedly the last (and violent) scared bullish of the last death throes of the effervescent stock market trend, which was followed by a loud pinprick. In parallel, a real estate bubble has also been developing, fueled by a quite generalized bubble of over-indebtedness. Well, that real estate bubble seems to be inflating again as you can read in this article by Business Insider. And what about the Bitcoin bubble about which we have been repeatedly warning you in recent times (the last time here), and that has had in one of its vectors of attack the huge Chinese capital coming in a relevant proportion of the middle class.
In the stock market, the Chinese authorities intervened and made statements both to try to avoid a bubble, and later to try to calm the spirits (so heated) after the puncture: all at the stroke of over-regulation as they usually do in the Asian country. In the real estate bubble the same authorities a few years ago took the radical solution of demolishing skyscrapers already completely built, in order to try to encourage the price of the properties left standing.
What I’m going to tell you about the Bitcoin market that the usual readers do not know, because the Chinese authorities are being characterized as being one of the most restrictive (if not persecutory) on the planet when it comes to the adoption of crypto coins.
And what is the common link of all these actions in such dispersed markets? Guess… based on over-regulation, it is being subjected to a persecution precisely that big snowball of Chinese money, which is going from one side to another depending on where they are more favorable investment conditions (or according to the furrows that are digging in front of him the busy government snow machines). In the words of President Xi Jinping himself, China will continue to strengthen financial regulation and defend against systemic risks. This is a clear case of trying to tame the untamed nature of popular capitalism.
Many analysts think that the wind blows in favor of this exit, since the perspectives of the slowdown of the economic growth seem to have stabilized, the fundamentals of the economy and the market seem to show their solid side again, and there is a growing lack of alternative investment destinations. On the other hand, re-inflating the prices of the shares would have a side effect that would now be very good for China: it would reduce its dependence on indebtedness.
It remains to be seen what will happen in the next episode by chapters of that great Chinese bubble of money rolling down the slope, and that only manage to roll from one place to another according to where it is most convenient to locate it (or according to where less potential damage can be done). It is curious how, after the last phases of globalization, it has had to be precisely a regime championed by Dictapitalism that has to deal with the most difficult face of capitalism, to which paradoxically it fought only a few decades ago.
China is undoubtedly a country of great contrasts. A new socio-economic model such as Dictapitalism has undoubtedly been an unknown terrain at a global level in which the Chinese authorities have decided to enter, but equally unknown is to expand to the maximum terrestrial variables of a model already known as capitalism. Perhaps the extreme over-regulation of the Asian country can tame this beast, or maybe the only way to domesticate it is to let it loose. It is the eternal dichotomy between over-regulating or free-regulating. The problem is that China is dramatically massive, and the consequences for the rest of the planet will be massive as well.