Category Archives: Financial Crisis

China losing control as stocks crash despite emergency measures

Margin debt on the Chinese stock market has reached $1.2 trillion. ‘We suspect that it’s a matter of time before banks may have to face the music,’ Bank of America says

Chinese equities have suffered the sharpest one-day crash in eight years, sending powerful tremors through global commodity markets and smashing currencies across East Asia, Latin America and Africa.

The violence of the moves unnerved investors worldwide, stirring fears that the Communist Party may be losing control after stoking a series of epic bubbles in property, corporate investment and equities to keep up the blistering pace of economic growth.

China losing control as stocks crash despite emergency measures

The New Japan: Will China’s Economy Implode? | The National Interest

With the formerly red-hot economy now on the cusp of  “structural recession and deflation,” analysts are now warning of a “Xi shock” that could mean the end of China’s recent rise. As Japan’s experience demonstrates, the recovery process could be slow and painful.

The risk of “Grexit” may have rattled financial markets, but for the Asia-Pacific region, an even bigger and closer threat is giving policymakers sleepless nights. Memories of Japan’s bubble-to-bust have been revived by China, which like its neighbor has enjoyed a massive stock and property bubble that is now rapidly deflating.

And with the communist giant currently the world’s second-largest economy and major trading partner to most of the countries in the region, the fallout from China’s downturn could be extremely damaging, hitting sectors from commodities to property, curbing investment flows and likely dragging down the rest of the region with it.

The New Japan: Will China’s Economy Implode? | The National Interest

Does stock market turmoil signal the beginning of the next crisis? | South China Morning Post

In his Pulitzer-Prize-winning book, Lords of Finance, economist Liaquat Ahamed tells how four central bankers, driven by staunch adherence to the gold standard, “broke the world” and triggered the Great Depression. Today’s central bankers largely share a new conventional wisdom – about the benefits of loose monetary policy. Are monetary policymakers poised to break the world again?

The unprecedented period of coordinated loose monetary policy since the beginning of the financial crisis in 2008 could be problematic. Indeed, the discernible effect on financial markets has already been huge.

The first-order impact is clear. Institutional investors have found it difficult to achieve positive real yields in any of the traditional safe-haven investments.

Investors have responded to near-zero interest rates with unprecedented adjustments in the way they allocate assets. In most cases, they have taken on more risk, particularly by increasing allocations in equities.

The resulting second-order impact could ultimately prove devastating. The equity bull market is now six years old. Even after the volatility following the crisis in Greece and the Chinese stock market’s plunge, valuations appear to be high.

But large-scale policy responses always produce unintended consequences, typically sowing the seeds for the next full-blown crisis. Given recent market turmoil, the question now is whether the next crisis has already begun.

Does stock market turmoil signal the beginning of the next crisis? | South China Morning Post

China expected to post worst growth since financial crisis – CNNMoney

There’s no question about it: After years of breakneck growth, China’s economy, the world’s second-largest, is now slumping. Economists say the government has no choice but to continue working to stimulate the economy, especially as data points continue to disappoint and risks keep piling up.

The numbers are expected “to show another tepid growth in real activity,” said UBS economists Harrison Hu and Wang Tao. The “sluggish economy … is prompting the authorities to escalate policy supports.”

China’s central government has already cut interest rates three times this year — most recently, just two weeks ago. Experts say the rate cut came earlier than expected, likely as a defense against a worrying stock market plunge over recent weeks.

China expected to post worst growth since financial crisis – CNNMoney

China’s Stock Market Bubble Bursts | Stratfor

“… China’s leaders run a political risk of losing the confidence of citizens but also, and perhaps more concerning, members of the upper echelons of the Communist Party and government apparatuses.”

“And if such a loss of confidence materializes, it could well change China’s fate.”

Finally, in trying and visibly failing to stem the stock market decline, China’s leaders run a political risk of losing the confidence of citizens but also, and perhaps more concerning, members of the upper echelons of the Communist Party and government apparatuses. China is approaching a period of unprecedented economic change and hardship. The economic slowdown of the past year is merely the start of a much longer process of economic restructuring being forced on China by a confluence of factors. Weathering that process, and enacting and enforcing the reforms needed to ensure that China comes out stronger at the other end, will require the country’s central leadership to have a firm grasp of the political structure. It will also require the confidence of the tens of millions of low- and mid-level politicians who constitute the machinery of daily governance.

Though there is no reason yet to believe that Chinese President Xi Jinping or any other central leaders have lost the Party’s or the people’s confidence because of the government’s troubles with the stock market, the risk remains. And if such a loss of confidence materializes, it could well change China’s fate.

China’s Stock Market Bubble Bursts | Stratfor

I wonder if the leaders are having nightmares about revolution yet? Maybe they should be. And maybe we should be having nightmares about an unstable China.

Let me see: Nationalism,

China stresses nationalism in war anniversary propaganda push | Reuters

“By highlighting the spirit of patriotism, uprightness and heroism in their creations, artists can help the public to strengthen their values on history, nationalism and culture, (and) therefore increase their self-confidence and dignity as Chinese,” Vice Minister of Culture Dong Wei said in written remarks before a news briefing.

At least five new films have finished shooting and will be screened at major cinemas beginning in early September, Tian Jin, vice minister at the State Administration of Press, Publication, Radio, Film and Television, told reporters.

Dong, Tian, and several other officials, including those from the People’s Liberation Army (PLA) and the State Archives Administration, declined to answer a Reuters question on concerns whether the works would stoke regional tension.

Many of the works will highlight the efforts of China’s ruling Communist Party in the war against Japan.

China stresses nationalism in war anniversary propaganda push | Reuters

the dictator,

Xi Jinping: the growing cult of China’s ‘Big Daddy Xi’ – Telegraph

A growing cult of personality surrounds Chinese president Xi Jinping as he seeks to cement his position as a Putin-style strongman determined to realise his “China Dream”

The construction of a cult of personality around president Xi represents a dramatic direction change for a country that sought to rule collectively after the devastation wrought during Chairman Mao’s three-decade monopoly on power.

Before Xi took office, “there had been a taboo and long-standing party norm: don’t hold yourself up as a personality,” said Carl Minzner, an expert in Chinese law and governance from New York’s Fordham Law School.

“Big Daddy Xi” has shredded that rulebook. “In two years he has managed to amass a level of power that we haven’t seen in one person in quite some time,” said Prof Minzner.

The message from Beijing’s spin-doctors was crystal clear. “Xi is the top dog.”

Xi Jinping: the growing cult of China’s ‘Big Daddy Xi’ – Telegraph

China’s expansionist foreign policy,

The South China Sea’s Ticking Time Bomb | TIME

Beijing is bulldozing sand into the eyes of the world

When it comes to international relations, there are many ways to change the situation on the ground. But the Chinese are trying a new one far off their coast: they are creating new ground.

It’s part of Beijing’s plan to extend its claim to 90% of the South China Sea, and now the Chinese government is ordering the U.S. and other nations to steer clear, or at least to seek permission before visiting the neighborhood.

The South China Sea’s Ticking Time Bomb | TIME

China’s expansionism echoes history | The Australian

In searching for historical parallels, the current Chinese regime most resembles the Nazis and the Japanese militaristic regime of the 1930s-40s. All three regimes became intensely nationalistic.

China’s leaders use nationalism because they believe it gives them legitimacy. Yet, government-sponsored protests against Japan are not always easy to control and can create popular nationalist demands which Beijing cannot meet.

Second, strong dictatorship characterises all three regimes. Even non-violent protest leads to jail. The Nobel Peace Prize winner Liu Xiaobo is only one well-known case among thousands.

Third, racism is at the heart of all three regimes. China today makes appeals to people in Taiwan and internationally as having “the same flesh and blood” and “shared blood vessels”. Chinese law states that a Chinese who becomes a citizen of another country no longer has Chinese citizenship, but the Chinese state still considers such people as Chinese with an obligation to the fatherland. Minorities such as Tibetans and Uighurs face constant and systematic discrimination.

Fourth, all three regimes set up vast prison camps for political prisoners and others who were seen as threatening. Some might argue that China does not have “death camps”, but the Nazis only created these in 1941, quite late in their regime.

Like the Nazi and the Japanese regimes in the 1930s, the Chinese today have become territorially expansionist. Like the Nazis and the Japanese militarists in World War II, the Chinese today perceive “appeasement” as weakness on the part of their opponents and push their claims with even more inflexibility.

Finally, all three regimes have used Hitler’s theory of the “Big Lie” which Goebbels implemented so successfully. The Chinese “Big Lie” has proven partially successful in convincing several former Australian political leaders, among others, that China does have claims to the East China Sea islands.

China’s expansionism echoes history | The Australian

and the fascism.

IS, Russia, China: all fascist states

The regimes in Russia, China and the so-called Islamic State are all fascist. The defining characteristics of fascists? First, they are authoritarian. Freedoms are curbed. The people are allowed no rights to resist the will of their rulers. Dissent is crushed, and crushed violently if necessary.

Second, power is highly centralised. Third, the nation is exalted above the people. Hypernationalism or jingoism is powered by a sense of historical grievance or victimhood. Putin says the West is intent on “tearing out the claws and teeth” of the Russian bear. His chief cause is restoring Russia to greatness.

China is overcoming its “century of humiliation” at the hands of Western imperialism. To this day, Chinese children are exhorted to “never forget national humiliation”. IS has declared its purpose is to “restore the caliphate”. Its leader and self-declared caliph, Abu Bakr al-Baghdadi, announced that “the West has reduced the Islamic world to nothing”. His aim: “We want to restore the greatness of Islam.”

IS, Russia, China: all fascist states

What happens when a fascist state gets in trouble?

Fear China’s stock-market earthquake – BBC News

For all my obsession with the probable exit of Greece from the euro and the most important social-security-cutting and tax-reforming UK budget for many years, there is an earthquake happening in China that may end up touching our lives as much.

It is the plunge over the past month of Chinese shares – whose value has dropped by around a third since the high of 12 June.

So to make an apple-and-pears comparison: the loss in the value of Chinese companies at more than $3 trillion is about 20 times what most economists expect the write-offs of Greek government debt will ultimately turn out to be.

The difference, of course, is that the $3 trillion loss is divided among around 90 million Chinese people, rather than a handful of European governments.

Fear China’s stock-market earthquake – BBC News

Europe is blowing itself apart over Greece – and nobody seems able to stop it – Telegraph

Like a tragedy from Euripides, the long struggle between Greece and Europe’s creditor powers is reaching a cataclysmic end that nobody planned, nobody seems able to escape, and that threatens to shatter the greater European order in the process.

Greek premier Alexis Tsipras never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation – and intention – of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 “ultimatum” and suffer the opprobrium.

Europe is blowing itself apart over Greece – and nobody seems able to stop it – Telegraph

Greek crisis is nothing compared to China – CNN Philippines

Why does this matter to people outside of China? A rapidly sinking stock market is often a sign of an economy in turmoil. Remember 2008? And 2000?

Since China is the second largest trading partner for both Europe and the United States, it goes without saying that a healthy Chinese economy is good news for the developed world.

All that talk about the possibility of Greek contagion if it is forced to drop the euro and bring back the drachma? That seems overdone too.

Economists at the Royal Bank of Scotland tweeted out a chart last week that showed that U.S. banks have nearly ten times as much exposure to China than Greece.

And Kathleen Brooks, a research director for FOREX.com, wrote in a report Monday that “sentiment could suffer across the Asia region and further afield” if China is unable to stop the bleeding in its stock market.

Greek crisis is nothing compared to China – CNN Philippines

The next financial crisis is coming – and we’re not ready

‘Stability leads to instability’

“Whenever you hear someone say an economy is strong and robust, a red light should be going off. Stability leads to instability, we know this now,” Kocken said.

According to Taylor, there are many systems around the world that are at risk of setting off a financial scare. And South Africa, with its large private, corporate and public sector debt burden is at risk.

He said China may initiate the next economic bust due to the slowdown of its improbably high growth rate in recent years.

“People are always talking about booming growth, but there is not enough talk about what level of growth is sustainable or even real. Very rapid growth often indicates euphoria and increases the risk of a consequential crash. Should a financial crisis occur in China, it would seriously affect South Africans,” he said.

The film shows with startling clarity how prior to each major global financial crisis – economic experts and even presidents spoke confidently about economic growth and stability. Only two weeks before the 2008 global recession, former US president George W Bush told Americans in his State of the Nation address that the US had a robust economy that was the envy of other industrialised nations around the world.

The next financial crisis is coming – and we’re not ready

Russia’s state banks are rotten | Business New Europe

Banks epitomise capitalism, but not in Russia. The financial industrial empires of men like JP Morgan, Rockefeller, Rothschild and Harriman are intimately tied up with creating the vibrant no-holds-barred capitalism in the US. In Russia the top five banks are all state-owned and their power comes largely from one man – Russian President Vladimir Putin.

The Russian economy is in recession and most of the important state-owned banks are under sanctions imposed by the US and Europe. Never particularly well run, the current environment means the tide has gone out for Putin’s “state capitalism“ system and it is apparent that several of these banks were not wearing swimming trunks. As the first quarter reporting season comes to an end, all Russia’s large state-owned banks admitted they are struggling.

What now?

With the banks in such a terrible state, the question is what happens now? The CBR’s emergency hike in interest rates to 17.5% in December made the cost of capital unaffordable to potential borrowers and while the central bank has reduced the rate several times since then into the low teens, it is still very expensive. Bank’s lending business, their main form of income, has collapsed as a result.

So far, the CBR has stepped in to provide funding and seen its share of liabilities rise to 11% of the banking sector’s total (in 2008 at the peak of the crisis the CBR accounted for only 3% of total funding). And the lucky few that have access to the state-directed loans are enjoying subsidised loans well below market rates. But the CBR can’t keep this up forever.

The Russian economy has been surprisingly robust in the face of Western sanctions and the ruble’s collapse, and it could even return to growth by the start of next year, so there is light at the end of the tunnel. If there is a “snap-back”, then many loans that were previously impaired could, once again, look profitable. On the other hand, if the outlook for the Russian economy remains bleak, then the situation in the financial sector could spin further out of control.

Russia’s state banks are rotten | Business New Europe