collapsing Chinese stocks: what did Xi think would happen?

Press reports indicate that earlier this week the Chinese equivalent of the SEC called a virtual meeting of global institutional money managers in an attempt to stem the continuing selloff in Chinese stocks. Officials “explained” that the latest development, the recent attack on publicly-traded cram schools was an isolated incident addressing a socially unacceptable practice, not an attempt to squelch private enterprise in general.

That might be true. And it might be believable …if this were an isolated incident. However,

–two years ago, Beijing introduced a bill in the Hong Kong legislature, a body it has complete control over, that gave the mainland the right to extradite to the mainland for trial any Hong Konger accused of a crime. This set off a prolonged series of anti-mainland protests that Beijing suppressed brutally. Subsequent trials of protestors, which are still continuing, have resulted in long prison terms for what seem to be minor offenses.

This action has substantially diminished Hong Kong’s appeal as entrepot to the mainland and as a global financial center where foreigners can buy shares in the best and brightest of China’s commercial enterprises. It has also brought greater meaning to Beijing’s declaration in 2017 that it no longer believes it is bound to its 1997 promise to allow Hong Kong a high degree of autonomy during a 50-year transition period from British rule

–last October, Beijing began an investigation of Alibaba’s apparently subversive idea of creating a fintech giant to compete against senescent traditional commercial banks, scuppering its plan to take its Ant Financial subsidiary public.

–this year, the attack spread to Alibaba’s rival Tencent

–recently, ride-hailing company Didi has come under similar pressure, apparently for ignoring Beijing’s orders not to list in the US.

The outlier here is the claim that nothing much is going on. For China, the highest official political aim is keeping the Communist Party in control of the country. To my mind, Xi is eliminating the threat from counter-culture entrepreneurs. Understandable from a narrow political perspective, much less so from an economic one.

Another thing I find odd is that from a political perspective, it seems to me that the US should be supporting the counter-culture companies. But Trump’s main thrust has also been an effort to cripple them by denying them access to American capital markets.

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