Overseas political commentator Liang Jing wrote this essay recently, thanks to David Kelly for the translation:
Chinese Premier Wen Jiabao’s recent intervention in the stock market not only led to much resentment, but also deepened some people’s worries about a financial crisis breaking out. Ye Tan, a woman and talented critic of the Chinese economy, recently published a commentary entitled: “Excessively squeezing the capital market bubble will cause the banks to collapse.” [1]
Ms Ye is a bright jewel in the Chinese media. As well as real ability and scholarship, she has the courage to speak up, which is very commendable in the Chinese context. However, “talking a lot ends in errors,” and Ms Ye’s critique, while containing much that is commendable, is clearly out of line on two issues. Firstly, Wen Jiabao simply doesn’t dare “excessively squeeze” the capital market bubble: he is simply trying to curb further unrestrained growth of the stock market. If it were to take a tumble, the funds would, on his order, buy on a large scale; and secondly, China’s government-run banks cannot collapse. Some of her readers have already noted this in discussion with her.
Ms Ye touches on several issues related to this in her critique, and they are indeed major issues that concern us all. One is whether a financial crisis drawing near in China. Another is how it would break out. Would it for instance, take the form of Ms Ye’s banking bank crisis breaking out? Another issue is, who is to pays the bill for a Chinese financial crisis?
It was argued overseas some years ago that a financial crisis was a fuse very likely to trigger a comprehensive political crisis in China, and the chance to light it had been handed to international capital by the opening of China’s financial markets. This view now appears to be a far cry from the actual logic of China’s system which, for all the many outer garments of modern society it wears, never changed the essence of “all land belongs to the king, and within the kingdom all are his slaves,” except turning it into “all land belongs to the Party and within the kingdom all are its slaves.” While such a system may have financial crises, they are quite incapable of triggering an all-out crisis.
The reason people think that it is, is due in large measure to memories of how the former Guomindang regime collapsed. Its financial policy failures lead to vicious inflation, an important catalyst of the regime’s disintegration. People should not forget that the growth in strength of the Communist Party’s armed forces in the war of resistance to Japan was the main background to this, without which the vicious inflation would have been quite unable to drive Chiang Kai-shek from the mainland.
But there is no similar challenge to the Chinese Communist regime at present. Well, actually, can a Chinese financial crisis happen? I have a friend who is a veteran financier. He believes that if Wen Jiabao immediately accelerated the appreciation of the RMB while at the same time increasing interest rates, there would soon be plain sailing for China’s financial markets. The problem is that Wen Jiabao may not do so: firstly, because he doesn’t understand finance, and secondly because he’s afraid to take political responsibility for a sharp depreciation of China’s foreign exchange reserves. If this is the case, it will be difficult to control China’s imported inflation and asset bubble, and a financial crisis may break out around the time of the Olympic Games.
China’s financial crisis is in my view more likely to develop as a chronic disorder. Zhou Xiaochuan recently stated explicitly that “if minor maladies continue they will not easily become serious.” His clear meaning was that turning a major crisis into minor ones would reduce the risk to the Communist regime. Turning major crises into minor ones does not mean that there are no crises, not that the bill for them does not have to be picked up.
This is just what Ye Tan is concerned about. She knows that at the end of the day, China’s taxpayers will very likely once again pay the bill for saving the banks and the government. Her comments express the anger and helplessness of China’s white-collar class. They don’t want to pay the bill for another government banking crisis, but what other option do they have apart from swallowing their anger? They are clear in their minds that they are a hundred times better off than hundreds of millions of rural migrant workers and their families in the villages, who ultimately pay the bill for the financial crisis after all. They pay for the chronic financial crisis with their most valuable things: their blood and sweat, and the health, life and future of their children and grandchildren.
[1] Ye Tan, “Guodu jiya ziben shichang paomo hui rang yinhang kuatai” [Squeezing the capital market bubble too much will cause the banks to collapse], Meiri jingji xinwen, 19 November 2007 [Âè∂Ê™ÄÔºö “ËøáÂ∫¶Êå§Âéã˵ÑÊú¨Â∏ÇÂú∫Ê≥°Ê≤´‰ºöËÆ©Èì∂Ë°åÂûÆÂè∞“Ôºå ÊØèÊó•ÁªèʵéÊñ∞ÈóªÔºå2007Âπ¥11Êúà 19Êó• ( http://bank.zgjrw.com/News/20071119/Bank/754671349600.html).
