‘No’ vote opens door to drachma; Malaysian PM in financial scandal; Asia’s same-sex sensibilities By Hamish McDonald.

China’s harrowing lesson in capitalism

An investor in Shanghai reacts to Chinese sharemarket movements  this week.
An investor in Shanghai reacts to Chinese sharemarket movements this week.

Is this the week the Chinese growth miracle ended? The implosion of China’s sharemarket bubble continued despite the desperate attempts by authorities to stop investors exiting and to pump in more money. No coincidence that the Australian dollar and the iron ore price sank in tandem.

Cuts to interest rates, easing the reserve requirements of banks, allowing more borrowing against housing to finance share investments, encouraging pension funds to invest in stocks, a ¥120 billion spending spree by patriotic stockbrokers, suspending new company listings and, yes, threats of criminal investigation against mysterious foreign short-sellers (punters who sell shares they do not yet own, in the expectation of price falls).

All this since the market peaked in mid-June, after the Shanghai share price index had more than doubled since last September. It hasn’t worked, and the rout continued into this week. It still has a long way to go. How many Chinese have bet the house on the market remains to be seen. Margin loans to finance shares have risen from less than 1 per cent of China’s gross domestic product at the start of 2014 to about 3.5 per cent now. Many of the individuals enticed into buying shares for the first time were quoted that they realised there was a bubble, but they would sell when signs emerged of prices topping out. Now they can’t get out, because regulations have created a bank-up of “sell” orders. Trading in more than a third of stocks listed in Shanghai and Shenzhen has been suspended anyway.

Revving up the sharemarket was the bright idea of Premier Li Keqiang, ironically the first in the job to have a doctorate in economics. It was supposed to lead to an explosion of new corporate activity, as the traditional source of economic growth, government infrastructure spending, had hit the limits. Instead there was massive speculation. The more sober indicators such as electricity consumption and freight volumes show an economy well below the official 7 per cent growth target.

Maybe this is the new normal for China, and we’ll have to moderate both the “fear” and the “greed” that we show towards it, as Tony Abbott summed it up to Germany’s Angela Merkel last year. Or is China heading fast into Japan-style stagnation and, if so, will the Chinese wear it so stoically as the Japanese did?

1 . ‘No’ vote opens door to drachma

All this is much more important to us than the standoff between Greece and its creditors, but not as good on television as demos in Syntagma Square, clips of high-stepping Greek soldiers, and interviews with desperate pensioners at ATM queues who speak some English.

So the referendum last Sunday yielded a resounding “no” vote to the latest round of belt-tightening demanded by the European leaders and the International Monetary Fund. Armed with it, the Greeks went off to the eurozone emergency summit on Tuesday, and waited for a change in attitude that wasn’t there yet. Back in Athens, bankers waited to see if the European Central Bank would resume liquidity support before their stocks of euros ran out.

François Hollande and Barack Obama continued efforts to persuade the Germans not to let the Greeks drift out of the eurozone. This would mean parking the Greek debt of €320 billion to one side and pretending it will be paid back one day, instead of hoping a squeezed Greek economy can somehow yield early repayment. But it’s the Greeks who have to come up with a proposal, not their reckless lenders, before this Sunday’s full summit of all 28 European Union leaders.

Meanwhile, discreet inquiries have been made to De La Rue and other leading banknote printers about a new run of drachma. Maybe there’s a nice little earner here for Note Printing Australia, the corruption-clouded producer of our polymer readies.

2 . Malaysian PM in financial scandal

Speaking of Note Printing Australia, we haven’t heard much of legal proceedings, in part due to a suppression order by the Victorian Supreme Court about revealing the names of Indonesian, Malaysian and Vietnamese figures alleged to have benefited from backhanders to
win contracts. It was only due to WikiLeaks that we learnt about the suppression order itself.

On the Malaysian front, this is but a small sideshow to the latest scandal around Prime Minister Najib Razak, after The Wall Street Journal reported that Malaysian investigators into his pet state investment corporation, 1Malaysia Development Berhad (known as 1MDB), had found nearly $US700 million diverted into his personal bank accounts ahead of the 2013 elections.

On Tuesday, Malaysia’s attorney-general, the governor of Malaysia’s central bank, the inspector-general of police and the head of the country’s anti- corruption commission issued a joint statement that they had frozen six accounts and collected transaction data on 17 accounts. 1MDB denied any of its funds had gone to Najib, who chairs its board of advisers. Najib himself denied the same.

With the help of a young wheeler-dealer called Jho Low, a friend of Najib’s stepson, 1MDB has racked up some $US11.6 billion in debts through the usual round of Malaysian-style cronyism. Najib has survived many financial scandals before. As one insider told the website Asia Sentinel’s John Berthelsen: “Malaysia has a huge carpet and there are a lot of bumps under it.” Still, the evidence may be too hard for agencies to ignore this time. But even if Najib goes, it will be business as usual, under the next prime minister lined up in the dominant United Malays National Organisation by the aged but still active former leader Mahathir Mohamad.

3 . Asia’s same-sex sensibilities

Two new converts to the Asian Century are Eric Abetz and Barnaby Joyce, who’ve opined respectively that adopting same-sex marriage would put Australia out of sync with Asian values and cause Asians to regard us as “decadent”.

True, the region’s conservative societies are slow to embrace the idea in a formal way, though initiatives have started in Japan, Korea, Taiwan and Nepal, and same-sex couples in India have been joined in Hindu marriage rites for some time. Nor has Sydney’s Gay Mardi Gras stopped Asian families sending their kids to be educated here or buying up houses, and the same-sex partners of Australian diplomats haven’t been ostracised in the region.

All across Asia, gays are coming out. And if you go to China, don’t call someone a tongzhi (comrade). It’s been taken over by the lesbian, gay, bisexual and transgender communities. At least in some quarters, the East is pink.

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This article was first published in the print edition of The Saturday Paper on July 11, 2015 as "China’s harrowing lesson in capitalism".

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