chinaecon26016

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:

Chinaemploy260116

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