MacroscopeTech and tuition crackdown: why China doesn’t want stock market heroes
- China wants to avoid a tech-led bubble bursting. But whether more pain now means more gain later will not be put to the test until the US tech bubble bursts
Viewed at one level, the Chinese government’s crackdown on the country’s entrepreneurial elite seems to echo former chairman Mao Zedong’s call in the 1950s to “let a hundred flowers bloom” – and then chop off their heads. But it is probably more accurate to see Beijing’s strategy as being one of pre-emptive bubble bursting.
High-flying tech and other entrepreneurs, whether they soar in the firmament of the United States or China, tend to generate stock market bubbles as big as their personas, bigger even than their personal fortunes. These draw disproportionate amounts of savings into stock market situations that inevitably (and painfully) go bust.
A tech-led crash would take an awful lot of investors, both individual and institutional, down with it and the political backlash could be severe. Western capitalism has a heavy bias towards equity financing – the US ratio of stock market capitalisation to gross domestic product is about 234 per cent, for example. So, a great many people stand to get hurt.
This is more than double the ratio in China, where it is still under 100 per cent. But it has been rising rapidly and a combination of growing investor expectations and the increasing lure of US-style superstar entrepreneurs may explain the official desire in China to avoid a tech-led bubble bursting.
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