Beijing Bingo
By Eric Margolis
August 30, 2015 "Information
Clearing House" -
My father, a New York financier, used to call
dubious stocks or bonds, “Chinese paper.” Last week, we saw a
blizzard of Chinese paper, both in China and around the world.
As manager of a sizeable investment portfolio (an unwelcome second
job from my main work, journalism), I watched last week’s near death
experience on world markets with a mixture of cynicism and
alarm.First of all, remember when Americans – and particularly
Republicans – demonized Mao’s China and endlessly warned about the
perils of Communism?
Well, the Chinese seemed to have listened. China ditched Communism
and embraced runaway capitalism – or at least a hybrid of 1900 raw
capitalism and state socialism. But Chairman Mao was proven right.
He warned his people against the evils of “casino capitalism” and
money lending.
The near collapse of China’s stock market in recent weeks scared the
hell out of the entire world but, at least so far, really has not
mattered very much. China’s markets are insulated from the rest of
the world. They serve as a way of letting average people share some
of China’s growth and as a form of national lottery – call it
Beijing bingo.
Western stock markets are also semi-rigged casino games in which the
big boys and their ultra high speed computer systems almost always
win at the expense of small fry.
Speculating on the New York or London markets is akin to what Samuel
Johnson’s famous quip about lotteries: “a tax on fools.” But
compared to China’s crazy markets, New York and London look like
Presbyterian church raffles. Chinese are a nation of frantic
gamblers.
What is truly of concern about China is the dangers of implosion of
its banking sector and the slowing of economic growth. China has
been steaming along at 10% growth per annum; now it’s down to a mere
7%, a rate western nations can only dream of achieving. If China
could but sustain 7%, that would be dandy. But it likely will not.
China’s raw material import boom is finished. So watch out Canada,
Australia, Brazil, Peru, and Africa.
In fact, I have long wondered about China’s economic reporting.
Based on my 16 years of doing business in China, I don’t trust
Beijing’s happy-face economic statistics or its banks.
China is the Wild East. Its business rules are mostly made up on the
fly. I first went to China in 1975. The Great Cultural Revolution
was still raging. Mao was gravely ill. His Gorgon of a wife, Jiang
Qing – known to Chinese as “the White Boned Devil”) was leading the
notorious Gang of Four trying to stamp out Marxist-lite
counter-revolutionaries. China was in chaos. But at least it had no
stock market problems.
Ever since Deng Xiaoping took command of China and decreed “it does
not matter what color cats are as long as they catch mice,” China
has vented its long-restrained commercial powers. The incredible
growth of China’s economy since 1991 is unprecedented in history, a
true “stupor mundi.”
Of course, this growth came from near zero. When I first started
going to China everyone wore threadbare Mao suits and subsisted in
profound poverty. Today, China is said to be the world’s second
largest economy.
South Korea performed an equally amazing rise from rags to riches.
Both nations hugely benefitted from being granted access to the
mighty US market.
I’ve always wondered where did all the money come from? A sea of
credit was created by the Party’s banking system. As a result, China
embarked on the biggest building programs in history. I recall in
the lovely northern city of Dalian watching workers go round the
clock putting up apartment buildings with marble floors and halls.
Finance came from state and local banks – thank you Communist Party.
Or from thin air.
China’s orgy of buildings, airports, new cities, harbors, highways,
high-speed trains was all financed by “Chinese paper” and overseas
Chinese money. Today, no one knows how much bad debt is choking
China. My sense is that one of these days the whole credit house of
cards may come crashing down, igniting another worldwide panic. I
instructed my money mangers to stay out of Chinese investments three
years ago.
Asian stocks dependent on exporting to China are in big trouble.
America’s near death experience in 2008 was the result of far too
much credit which had become a sort of amphetamine drug for the
economy.
The financial witch doctors at the Federal Reserve in Washington
artificially inflated the equity market by so-called monetary easing
(aka printing money). Savers were punished, lenders rewarded.
Last week, many stocks inflated by the Federal Reserve came crashing
down as all the hot air that had pumped them up rushed out of the
market.
The same holds true for China.
China needs another generation to master the difficult juggling act
of capitalism. But Chinese, who are by nature brilliant businessmen,
will learn. Right now, however, they should take a breather and
straighten out the big financial mess at home.
China is not about collapse. As the French say, “take a step
backwards to better leap in advance.”
The US seems poised for growth – if its useless Federal Reserve
central bank will just get out of the way. Interest rates must come
up to restore market stability. We can’t blame all our problems on
China. Rather, on our own Great Wall of Chinese Paper.
Eric S. Margolis is an award-winning,
internationally syndicated columnist. His articles have appeared in
the New York Times, the International Herald Tribune the Los Angeles
Times, Times of London, the Gulf Times, the Khaleej Times, Nation –
Pakistan, Hurriyet, – Turkey, Sun Times Malaysia and other news
sites in Asia.
http://ericmargolis.com