Chinese leaders still have a firm grip on policy despite stock market jitters
Gary Sands says while Beijing's measures to control the stock market seem desperate, leaders show no sign of losing their aura of invincibility
After the big drop in the Shanghai and Shenzhen indexes earlier this month, many China analysts called into question the Communist Party's ability to control not only its stock markets, but also other policymaking. The party's ill-fated attempts to stem the decline have included freezing activity on almost half of the companies traded on the markets, banning all new listings, state-backed buying of shares, suspending large mainland trading accounts, and threatening to arrest short sellers. Then, the People's Bank of China approved a devaluation of the yuan, in an effort to support its exporters. All these drastic measures are a worrying sign to many that the party has lost control of the markets and may struggle with other policy measures.
David Dollar, senior fellow at the Brookings Institution's Thornton China Centre, warned: "By coming in with all these measures, the central authorities on the one hand seemed a little panicky ... and the real worry is that this undermines Chinese people's confidence in the real economy and the government's ability to make policy." And Paul Krugman, winner of the 2008 Nobel Prize in economics, said the Chinese leaders "have no clue what they're doing".
Few of the 90-million-plus Chinese investors have lost money, so the effect on consumption should be minimal
Yes, the measures have been draconian and desperate, but the party is dealing with an immature market where few people hold shares - they account for only about 9 per cent of household wealth. Some have warned that the crash could undermine the underlying economy. Yet few of the 90-million-plus Chinese investors have lost money, so the effect on consumption should be minimal.
Party leaders had been talking down the markets in recent months, and their latest efforts to manage the drop (with large cash reserves) have proved successful; some of the froth has been removed. No doubt, markets will continue to fall, as liquidity is restored and investor confidence diminishes, but the falls will be managed to avoid creating panic.
Has the party lost its aura of invincibility in other policy matters?
Nationalists would argue Beijing is making headway in its attempts to assert control over the East and South China seas. National security measures appear to be tightening, and at least 15 senior military figures have been accused of corruption in the past year, a further sign of President Xi Jinping taking firm control.
The leadership seem willing to experiment with any method of control, and their success to date in keeping together an entropic and disorderly society cannot be easily written off.
