Chinese Stock Market Woes and the Pre-War World

Bloomberg:

China is bolstering efforts to arrest a selloff that has rippled through risk assets globally, banning major stockholders from selling stakes as more than half the country’s listed companies are suspended from trading.

Expect some ripple effects, given that a LOT of people can’t sell formerly liquid assets—if they need money they will need to sell offshore assets.

As of this writing, the stock market is slightly up–but yeah, that’s with over half the companies frozen and with vast efforts by the government to funnel money into those that aren’t frozen. A ton of investors are still selling what they can.

Let’s talk China for a bit. I’ve long said that China is the place to watch: It is now a larger real economy than America’s, with a larger population, and it is the largest industrial country in the world. Making stuff, real material stuff, still matters. Americans trumpet innovation, but Britain was still producing more patents than America for years after America was the biggest economy in the world; the stuff just wasn’t made in Britain.

Commodity prices have been dropping in virtually every commodity, not just oil. This is driven by, yes, China, and it affects every commodity exporting country in the world.

(Insert ritual cursing out of Canadian Prime Minister Harper for his policy of doubling down on oil and abandoning manufacturing, thus critically damaging a mixed economy policy well over 100 years old.)

China has been vastly overbuilding infrastructure and real-estate for some time. The media is replete with stories of vast tracts of uninhabited high-rises and so on. Much of what has been built is of dubious quality (not necessarily entirely bad, if it has to be rebuilt, from an economic viewpoint, but disastrous from an environmental one). Peasants in China love their lives; workers hate theirs, even though workers have much more money. This is a direct analogue of Western industrialization, by the way, people had to be forced off the land. Early industrialization makes life much worse for most people directly involved.

I can’t speak directly to Chinese leadership, but I’d guess that we’re now reaching the point where the last competent people are near the end of their careers. Soon the Communist party will be run largely by princelings: entitled, greedy, and short-sighted.

China is a violent nation. Huge industrial protests happen all the time, entire villages fight (and sometimes win) against army units, etc. The violence is often savage—hand-to-hand melee with iron rods and so on.

One wonders why the Communist party keeps cracking down, installing more surveillance, etc, etc. If they lose control, or if they don’t make it to the airport before the mob, they and their entire families will die, and die messily, or worse.

If things go really pear-shaped in China, the Communist party WILL blame foreigners. You can bet every cent you have on it. War is possible. China is making the necessary preparations and pre-war blocs are forming.

Now, this stock market crash isn’t necessarily the precipitating event. I doubt it is, and even if we look back in 20 years, in the midst of the sweet nuclear glow, and conclude it was, we won’t know for some time that it is.

But we are in a world which is a ton more dangerous than most people, many of whom buy into this “the world is getting less violent” stuff, are willing to believe. Yeah, the world is less violent than it was for most of the post-WWII period, but such periods, well, they end, when the conditions which made them possible end.

The Chinese can still print a ton of money. The lesson the elites took from the Financial Crisis has been “just print money if people who matter are hurting.” The Chinese and Westerners put different groups of people into their “who matters” categories, but both are willing to run the virtual printing presses.

What This Means: It’s likely that the situation won’t go really pear-shaped until such time as running the printing presses stops working as a preventative to staving off disaster. Unless until someone gets stupid and doesn’t run the presses when they should because they think the people suffering don’t matter enough to bother with.

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