Shanghai financial market signals are not false flags, and the data prove it

I love the slang that goes with being a neoliberal numbskull, because it is always the self-evidently obvious force-fitted into the insanely optimistic.

I note, for example, that the markets today are “showing a good direction of travel”, because they seem to have ignored the reality of the Shanghai index having plummeted by a whopping 6.42% overnight. They’re doing this partly because the Devils of Davos last week told them that there is a ‘disconnect’ between Chinese financial markets and the ‘real’ economy there. Mainly, however, they’re doing it so the megabig smart money can ‘directionalise’ what JFK’s Dad Joe Kennedy used to call ‘Sap Money’.

Thus we see that a good direction of travel for the markets is upwards – on the share values and also the wealth demography – in order to disprove the rule upon which neolibs insist – viz, that wealth trickles down. For travelling upwards means more saps you can fleece when the direction of travel becomes ‘nowhere very much’, at which point the smart money getsTF out….and takes another cool profit. (A good example of this at the moment is the ‘oil rally’ which never made any sense, a tank that is now employing all five reverse gears).

You may ask whatTF any of that behaviour has to do with financing mutually healthy entrepreneurial capitalism, to which the answer is “nothing”. But you see, this reality is merely ‘proof’ of what the Prefects say – viz, that there is a disconnect between Chinese financial markets and the real economy.

Those of you still with me by this, paragraph five, have probably spotted that – by the time they have finished during any given day persuading us that up is red-down and good is right-left – the Onepercenters have multiply contradicted themselves….along with the important data, the anthropological science, and the learnings from history. Thus the only defences left to those of us on terra firma are satire and empiricism. So having spent five paras on satire, I’d like to devote the rest of this post to all things empirical.

Herewith some starters. As a result of financial market instability, China has seen the flight of over $1 trillion in investment capital during just 16 trading days of 2016. In a masterpiece of understatement, the Wall Street Journal described this as ‘unsustainable’. The population of China is roughly 1.5bn, which means that in those few days, the wealth of every Chinese citizen fell by $666.70…which is (based on 2014 data) almost exactly the average factory worker’s monthly salary. In Sovereign budget terms, the Dickensian term “result – unhappiness” applies…but it’s actually much worse than that. Legally, nobody can work for money until the age of 16, and under 15% of the Chinese enjoy those (relatively high) factory wages.

During the period 2004-13, it is estimated that the Chinese central bank (PBOC) blew some $5 trillion on selling its currency to ensure a low exchange rate….and thus maintain its competitive pricing position against growing Asian comptetion. Despite that policy, several major Asian nations are now more price-competitive exporters than China.

That was a huge amount of cash to maintain price parity….but see previous paragraph to understand how minute it was compared to a trillion bucks in 16 days.

One trillion in 16 days is – to set out pedantically just how much a trillion dollars is – the lost potential to finance the expansion by acquisition of 4,000 $125m turnover Chinese companies plus an organic growth investment in 40,000 medium sized concerns. Multiply those numbers by 22 to get to an annual total, and you can see just what enormous potential is being destroyed by the financialisation of Chinese capitalism.

Still think there’s no connection between the Shanghai/PBOC numbers and this so-called ‘real’ economy? OK, no problem – let’s keep going.

Goldman Sachs has estimated that the Chinese government spent $236 billion propping up falling markets during the August 2015 turbulence. China-watchers in Frankfurt reckon that, in half the time so far this year, it forked out another $450 billion….but the fall has continued, and broken through the 3,000 market index barrier it spent so much to protect six months ago.

Let’s be really wildly optimistic and say that at least one more escalating problem happens on the Shanghai before next August. There goes another trillion dollars. Go back three paras and double the number you first thought of.

And there’s more. The Goforits told us a year ago that, despite it’s “transitional nature”, the Chinese economy would grow by 7.2% in 2015. In fact, it was 6.7%. Or put another way, about 15% out. That was due to another reality – collapsing global trade. But even so, China actually lost share of world trade last year. Put that into the context of world trade having fallen as a driver of gdp growth since Crash1 in 2008, and you start to see why everyone from Manhatten to Beijing is so desperate to tell us that the Chinese economy is ‘merely going through transition’.

However, thanks to one of my favourite websites – the CIA Yearbook – one can see that already, at the end of 2014, China had an almost perfectly balanced and diverse economy by employment as follows:


A third a third a third. In short, a great deal of transition was wired in years ago thanks to the need to distribute produce to – and then feed – 1.5 billion citizens of the CPR. Equally however, we can see that the Shanghai index does apply to at the very least 40% of China’s economic structure….and not the fictional 3% picked out of the polluted Beijing air by neolib apologists some ten days ago.

The bottom lines are these:

  1. China’s economic slowdown has little to do with transition, and far more to do with the global economic slump
  2. Ergo sum, the ‘disconnect’ between China’s financial markets and its economy is a myth
  3. The data support these conclusions, not Davos delusion.

The real disconnect, in fact is between the Alpine 1%, and the rest of us down here in the foothills, wallowing with lead boots on in the mire. As Monty Python’s holy grail script had it:

“Who’s that?” – Peasant
“I don’t know, must be a king.” – Peasant II
“Why?” – Peasant
“Because he doesn’t have shit all over him.” – Peasant II

IABATO! (It’s all Bollocks and that’s Official)

Earlier at The Slog: More pensioners covered in shit


  1. “During the period 2004-13, it is estimated that the Chinese central bank (PBOC) blew some $5 trillion on selling its currency to ensure a low exchange rate”


  2. i am reminded of a william blake (1797) piece:
    “what is the price of experience. Do men buy it for a song, or wisdom for a dance in the street? No it is bought with the price of all that a man hath, his house, his wife, his children.Wisdom is sold in the desolate market where none come to buy. And in the withered field where the farmer plows for bread in vain. …”

    obviously, wisdom is not on sale in Davos.

    Liked by 1 person

  3. @ nwf

    yes I do agree this statement needs clarifying. Usually you sell YUAN to make the DOLLAR go up and the yuan go down — to achieve yuan DEVALUATION.


  4. Rather a lot of speculative residential blocks of flats, south of the river in London, are supported by Chinese money, out of Hong Kong. There will be pain, just like 1974. The same applies for the ghost town ,north of the river, where no lights are on at night. In five years time, central London may just about feel English.


  5. It’s not clear whether you are saying that China bought $s or ( as I take “blew” to mean ) sold them. I haven’t seen anything like the $5tr figure, what is its source?


  6. What it comes down to is not what people think is true but what people think will happen to the FTSE. I know someone who is effectively retired with most of their non-pension/non-property assets in the FTSE. They said to me at the weekend that ‘growth’ = increase in the FTSE = depends on the perception of the finance world on Chinese prospects.

    That says that no-one is analysing fundamentals and everyone is trying to call the top of the market before getting the hell out.

    That says to me that we have greed and fear in equal measure and that the crash, when it comes, will be very significant.

    The claim that folks will ‘move into bonds’ as they are ‘very low risk’ is not something I agree with. UK Treasuries will continue to get more risky as sovereign debt increases.

    A lot of relatively unsophisticated boomers retiring who have little understanding of the nature of the pump and dump etc etc strategies that the financial world has in store for them.

    Caveat everyone, me thinks….


  7. “What what is worrying you?”
    Oy! M. Ward! The day that anyone believes a blog posted by a bloke who cannot work his computer/smartphone/tablets and anything else techy wot he might own – well, M. Jean, would you pay attention to fly-by-nights who claim they will “fix everything for you” ???
    Yes, well! Of course you do! You do it every single week of every single year and have been doing the same thing since you ever rote a “blog”.
    U R a foolish Kunt and any single soul who post to you “tips” etc. is an even bigger foolish Kunt. You should be selling aluminum hats but they are probably faulty.
    Get lost you sad l00s3r!!!


  8. Yet that MBS purchase program discussed on Peak Prosperity was about three years ago, and oceans more ink have spilled on gloom and doom perma-bear venting. ZH and others have been crying wolf and other animals for a long time, so when do people believe them? Or just continue to tune them out and research elsewhere?


  9. Surely the point of the article is that in recent years, unbelievable sums of public money have been funnelled towards essentially parasitic financial institutions that maintain the facade of a healthy economy. Meanwhile the real economy, the one that most of us rely upon for existence, atrophies, and the public institutions that our forebears worked so hard to establish are either sold off to the criminal elite, or are starved of resources in the name of ‘austerity’. It is now undeniable that the entire neocon/neoliberal Anglosphere is in rapid decline as multiple financial chickens come home to roost. The quality of life of all but a small percentage in the U.S., Canada and the U.K. is well below where it was even ten years ago. The number of US citizens who rely on foodstamps and the true unemployment rate in the States is testament to the destruction wrought by the financial parasites – the very parasites that are fattened even more by the fraud of QE. If being aware of this makes one a gloom and doom perma-bear then get me some ursine rollers.


  10. speaking as a perma bear wolf crier…… there is in fact a problem with ponzi schemes….. ask madoff… wall street, ftse, and the bourses are no different… yet most people accept because MSM pressitutes and (ha ha ) news channels keep pumping out rubbish 24/7…. the end of this road is material catastrophe..


  11. I love reasoned debate me. But absolutely amazing when you stick a good bit of well structured personal honesty into what turns out to be a “Wasps Nest” & give it a good wiggle about. But then they are only paper thin & less substantial than they appear from outside. In my mind a true ideologue needs little defence, it is robust in it’s own right & stands for that reason.

    Buttons need to be pressed though, as you know John.


  12. The tragicomedy of this discussion involves China (and others) selling the sovereign instruments of investment flummery back to the issuers to delay their mutual collapse. China will be the last party to receive any value for the instrument, regardless of what kind of collateral is returned to them for the paper. The issuer has to remove so much (gold) from their treasury to delay the collapse in the perceived value now that China needs something more tangible than a promise to pay. And China seems to know value.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s