The Chinese stock market has been in freefall for several days and more than half of the listed companies have suspended trading in their stock. By Tuesday, the market had lost US$6.5 trillion in value, 17 times Greece’s GDP, and it is still falling. Rather than the Greek financial crisis, it is the Chinese stock market disaster that poses the biggest economic threat to the world.
What has caused this fall? The Chinese economy has experienced high growth for several years, and as the People’s Bank of China has lowered interest rates and relaxed capital controls, a capital bubble has formed. When the growth rate slows, there will be an unstoppable chain effect. The Chinese government is trying to save the market through intervention, and the central bank has lowered interest rates, the reserve requirement ratio and the reverse repo rate, all to no avail.
China’s Securities and Futures Commission last weekend issued repeated signals that it would rescue the market, and 21 securities firms entered the market in a net asset position, but investors saw through the government’s attempt to save the market and took advantage of the situation, making a profit and then pulling out, and the market continued to fall. There is now a risk that a capital outflow crisis could lead to a financial crisis.
China’s economic system is affected by its opaque political system, and there is a lack of public trust. The Chinese economy is not doing as well as it used to, but it is still not doing too badly. Despite that, a wealth of conspiracy theories have caused public trust to collapse.
China’s has always been a centrally planned economy, and the government has always manipulated the market. The scale of the market has now expanded and market factors have become more complex, with the result that government intervention is not as astute as it was. The government sees the fortunes of the stock market as its own responsibility and thinks it can turn the tide on its own, but the government is clearly incapable of outsmarting the market.
The Chinese economy’s slowing growth rate is an unavoidable trend. Beijing forecast a growth rate for this year of 7 percent and has said that the growth rate will drop to 5 percent within 10 years. This period of falling growth will be accompanied by adaptation and the creation of a legal framework formalizing the economic system and deregulation measures, but the government still lags behind and if the slowing growth gets out of control, the economic slowdown will be even more precipitous.
Taiwan is the nation that is most economically dependent on China in the world today, and the Chinese stock market disaster will have a direct impact on Taiwanese investments in China. The damage to the Chinese market will also have a massive impact on Taiwanese imports and exports. As the Chinese economy sickens, the global economy will catch a cold, but the Taiwanese economy will catch a fever.
Taiwan has long been dependent on China’s development and neglected its international expansion. Now that China itself is alert to its slowing domestic economy and is turning to its “one belt, one road” strategy to create a wider regional market, there is even less reason for Taiwan to place all its eggs in the Chinese basket. The Chinese stock market disaster is a crisis, but it also offers Taiwan a good opportunity to increase its efforts to join the Trans-Pacific Partnership and other international trade frameworks.
In their recent op-ed “Trump Should Rein In Taiwan” in Foreign Policy magazine, Christopher Chivvis and Stephen Wertheim argued that the US should pressure President William Lai (賴清德) to “tone it down” to de-escalate tensions in the Taiwan Strait — as if Taiwan’s words are more of a threat to peace than Beijing’s actions. It is an old argument dressed up in new concern: that Washington must rein in Taipei to avoid war. However, this narrative gets it backward. Taiwan is not the problem; China is. Calls for a so-called “grand bargain” with Beijing — where the US pressures Taiwan into concessions
The term “assassin’s mace” originates from Chinese folklore, describing a concealed weapon used by a weaker hero to defeat a stronger adversary with an unexpected strike. In more general military parlance, the concept refers to an asymmetric capability that targets a critical vulnerability of an adversary. China has found its modern equivalent of the assassin’s mace with its high-altitude electromagnetic pulse (HEMP) weapons, which are nuclear warheads detonated at a high altitude, emitting intense electromagnetic radiation capable of disabling and destroying electronics. An assassin’s mace weapon possesses two essential characteristics: strategic surprise and the ability to neutralize a core dependency.
Chinese President and Chinese Communist Party (CCP) Chairman Xi Jinping (習近平) said in a politburo speech late last month that his party must protect the “bottom line” to prevent systemic threats. The tone of his address was grave, revealing deep anxieties about China’s current state of affairs. Essentially, what he worries most about is systemic threats to China’s normal development as a country. The US-China trade war has turned white hot: China’s export orders have plummeted, Chinese firms and enterprises are shutting up shop, and local debt risks are mounting daily, causing China’s economy to flag externally and hemorrhage internally. China’s
During the “426 rally” organized by the Chinese Nationalist Party (KMT) and the Taiwan People’s Party under the slogan “fight green communism, resist dictatorship,” leaders from the two opposition parties framed it as a battle against an allegedly authoritarian administration led by President William Lai (賴清德). While criticism of the government can be a healthy expression of a vibrant, pluralistic society, and protests are quite common in Taiwan, the discourse of the 426 rally nonetheless betrayed troubling signs of collective amnesia. Specifically, the KMT, which imposed 38 years of martial law in Taiwan from 1949 to 1987, has never fully faced its
RSS