Slowing growth, falling stocks and a major pharmaceutical industry scandal are all eroding confidence in wobbly Chinese asset prices
A scandal involving faulty vaccines wouldn’t seem a threat to China’s most powerful reform push in decades. Nothing could be further from the truth, though, as President Xi Jinping’s 2018 darkens by the day.Probably related:
Recent days demonstrated why. China’s president doesn’t tweet or engage in public displays of emotion. Yet stress levels in Beijing are surging as growth slows, a trade war escalates, the yuan slides and Sinologists buzz about waning enthusiasm for upending an imbalanced economic system.
US President Donald Trump’s tariffs arms race, meantime, are shoveling sand into the gears driving the world’s biggest trading nation. First levies on steel and aluminum, then 25% taxes on US$34 billion of Chinese goods. Another US$200 billion of tariffs is on the way to as much as US$505 billion of China’s America-bound exports.
The yuan’s accelerating drop over the last six weeks reflects investor doubts that Xi can keep dueling bubbles in credit, debt and property from imploding. This so-called Minsky moment arrives in every giant, industrializing economy and it will someday hit China. The question is whether Trump’s trade assault will deliver that Minsky reckoning.
A recent scandal, where hundreds of thousands of Chinese school children may have been injected with faulty vaccines, scandal ties these challenges together, has sparked a national uproar and raises the stakes considerably for Xi’s legitimacy.
“Xi has staked considerable political capital on rooting out corruption and strengthening control,” writes Minxin Pei, author of “China’s Crony Capitalism,” in a Project Syndicate op-ed.
“The fact that a private company with deep political connections is at the center of the vaccine scandal is painful evidence that Xi’s top-down anti-corruption drive has not been as effective as claimed. An unintended consequence of Xi’s consolidation of power is that he is accountable for the scandal, at least in the eyes of the Chinese public.”
The anti-graft drive is absolutely central to remaking the economy. It’s about forcing vested interests to embrace economic liberalization and an independent private sector. The vaccine narrative fans fears that Xi’s push is less a generalized campaign to cleanse the system than a targeted strategy to silence rivals. It heightens growing concerns that Xi’s economic shock therapy isn’t all it’s cracked up to be.
This year’s 17% plunge in Shanghai stocks is a reminder, for example, that the summer of 2015 never really ended. Two years ago, plunging shares were nothing short of an existential crisis for a leader pledging to give markets a “decisive role.”
Then, Xi’s men threw the full weight of the government at short-sellers: cutting interest rates; buying shares; loosening margin and leverage requirements; suspending initial public offerings; and halting trading. Beijing even made a public appeal: buying shares to stabilize the market is patriotic....MUCH MORE
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