By: David A. Smith 1 Continued from yesterday s Part 1 .] The Chinese government wants you to buy high, hold indefinitely or else Anne Stevenson-Yang in Barron s on September 5, 2015. 3 So facile are human minds that when confronted with a nuclear fact one that entirely disrupts the previous world-view we can go from denying the possibility to rationalizing that it s nothing to worry about in the blink of an editorial column. New worldview uploaded Sources used in this post YouTube video of CSIS February 2015 symposium 4 Ms.
Stevenson-Yang at 3:00-28:15, 51:45-57:45, 1:08:30-1:10:45, 1:16:40-1:19:00 The New York Times (3 November 2015; dark green font) 5 Wall Street Journal (January 28, 2016 ; orange font ) 6 The New York Times (25 February 2016) 7 So it is proving with the exposure of China s comprehensive, pervasive manipulation of official statistics. Despite accepting the idea that every single one of them is likely wrong, and all are slanted in the rosiest way possible, many observers conclude that the arithmetic sum of a totality of fibs nevertheless must be largely truthful because after all, it couldn t all be a fa ade, could it? I m fearsome, my economy breathes fire In truth, nobody outside of China knows some are just less clueless that others.
2. No one knows how strong or weak China s economy is The party now sees reports of economic turbulence as a potential threat . The same goes for data. 8 Waiting in line to buy food rations in Venezuela, April, 2015 In both Venezuela and Argentina , accurately reporting statistics got you jailed .
China hasn t gone quite that far, but people who speak up are periodically and mysteriously detained. 9 10 11 12 Chinese leaders are taking increasingly bold steps to stop rising pessimism about turbulent markets and the slowing of the country s growth. As financial and economic troubles threaten to undermine confidence in the Communist Party, Beijing is tightening the flow of economic information and even criminalizing commentary that officials believe could hurt stocks or the currency. 13 If you want to keep publishing and making money, don t criticize me More than many other nations, China has for centuries used the show trial and public confession of guilt as a means of cowing dissent and independent thinking. Mao looking down on the far left, a very young Deng Xiao-ping at far right It s still the pattern today: censoring the internet, whitewashing official statistics all of that invites the inference that China s leadership is afraid of its citizens and needs their information, and their residency , compartmentalized. 14 The effort to control the economic narrative plays into a wide-reaching strategy by President Xi Jinping to solidify support at a time when doubts are swirling about his ability to manage the tumult.
The government moved to bolster confidence on Saturday by ousting its top securities regulator, who had been widely accused of contributing to the stock market turmoil. 15 Scapegoating, of course, is universal. Mr. Xi is also putting pressure on the Chinese media to focus on positive news that reflects well on the party. 16 What s that opium you ve been smoking?
Remember Rule 3: Between observation and doctrine, report doctrine . That s still the mantra, and it works as long as Rule 1 holds: Nothing outside of China matters . The tightly scripted story makes it ever more difficult to get information needed to gauge the extent of the country s slowdown, analysts say.
Data disappears when it becomes negative, said Anne Stevenson-Yang, co-founder of J Capital Research, which analyzes the Chinese economy. Though better than people disappearing, it s no vote of confidence. Risking being cracked down upon himself We are going to continue to see crackdowns on people telling a different story than what Beijing wants to hear, said Leland R.
Miller. And Rule 1 is weakening, because now China wants inward investment, and after half a century of bait-and-switching foreign capital, the foreign capital is in no hurry to buy (say) the magic lantern of Alibaba. At the same time, Beijing appears to be conflicted on this issue, because it recognizes that without independent gauges, commercial relations and foreign direct investment will suffer, due to growing skepticism over official data.
You can t suddenly buy integrity; if you try, not only do you not get the genuine article, you overpay badly for it. And China, like every other government, can be schizophrenic, with new reformist policies at the dinosaur head, and all the old instincts scattered throughout the body and those instincts are always to shut off discussion. All of you tons follow where the head leads, okay?
Last September, Markit Economics , a British company, and Caixin Media , based in Beijing, stopped publishing preliminary results from a monthly survey of purchasing managers at Chinese factories. The preliminary results, which came a few days before the two firms and the government separately released complete numbers, often affected markets. As a result, officials at China s statistics bureau objected to the early release, according to people with knowledge of the official order. 17 18 It s a very influential economic indicator, and it s highly cited overseas, said Mr.
Yuan, the researcher at Tsinghua. Given the international worry over the Chinese economy, I had a sense last August that the Caixin indicator wouldn t really last long, because its publishing in mainland China had touched high-tension lines. China also shut down the blog of Ren Zhiqiang , who s long been the Donald Trump of China: a property development tycoon, loud, brash, and deliberately controversial and recently, politically aggressive as well . 19 20 21 This user no longer exists When all media have surnames and do not represent the people s interests, the people will be cast aside into a forgotten corner!
Mr. Ren complained on his microblog hosted by Weibo, a Chinese social-media site. In another post Mr Ren asked: Since when has the people s government been turned into the party s government?
He said that taxpayers money should not be wasted on things that do not provide them with services. Speaking truth to cyberspace Mr. Ren had 38 million followers , and while his current voice is silenced, the 38 million are not suddenly going to believe what the party tells them.
If anything, they re going to believe he was right . 22 23 We ve been deceived for years. The Cultural Revolution only let me know the class struggle under a proletarian dictatorship. And that there is no next generation of communism, Ren wrote: The invincible Mao Zedong Thought has let thousands of people starve to death, and we don t even know who many people died through persecution during the Cultural Revolution.
Maybe even more people died because of wrong political policies than because of the war. China has always had emigre observers who perched nearby Hong Kong, Formosa but before the internet they could be ignored as they had no means of reaching the Chinese domestic population. Anne Stevenson-Yang , of J Capital Research , said she and her colleagues had seen growing discrepancies in official data in the last two years in a variety of sectors, including retail, shipping and steel production. 24 25 Now that genie is out of the bottle, due to global communication, global capital, and most notably a Chinese global elite that frantically wants to export its capital as fast as humanly possible.
AHI posts on China s urbanization and capital August 23, 2010: Gleefully running up the debts , 2 parts, SOEs and development 26 October 28, 2011: A little learning is a dangerous thing , 2 parts, hukou and schools 27 July 29, 2012: I m shocked, shocked , kickbacks in property development 28 August 23, 2012: China s cities and housing: Nothing outside China matters 29 August 25, 2012: China s cities and housing: Imperial economy is successful society 30 August 26, 2012: Suburb stuffing , 2 parts, new ghost high-rise townks 31 September 17, 2012: China s cities and housing: Between observation and doctrine, report doctrine 32 July 22, 2013: China s runaway money train , 4 parts 33 December 16, 2013: Formula for an instant slum , 5 parts 34 September 19, 2014: Where the money goes, people will follow , 3 parts 35 February 1, 2016: Yuan to buy American housing? , 4 parts 36 AHI posts on global financial markets June 26, 2006: Fannie Mae, the implied story , 7 parts, HUD OFA report 37 June 30, 2006: Part 5, Smoothing earnings with financial tricks , Gaming earnings 38 January 22, 2008: Who s next? , 2 parts, Fannie Mae s thin capital ratios 39 May 6, 2008: Catastrophe is a precondition to fundamental reform , 2 parts, US meltdown 40 December 4, 2012: Innumeracy precedes insolvency , 4 parts, San Bernardino bankrupt 41 October 7, 2013: The demise of deposit insurance , Russia investing in Cyprus 42 September 3, 2015: House and country , 9 parts, Russian oligarchs buying London 43 3. Capital is fleeing China at unprecedented and unstainable rates China s foreign-exchange reserves fell by $700 billion last year. The flood of cash across its borders is complicating the country s economic transformation and is raising the risks of problems in other emerging markets, where cash already is flowing outward.
You can only sell cash abroad if it s in a currency foreigners want to buy The flood of cash leaving the country has produced another impressive statistic: We are witnessing the greatest episode of capital flight in history. As far as I know, there is no analog in history for what is now taking place in China: the country s socioeconomic elite are exporting their cash at rates that have gone from zero to warp speed in barely over a year. The phenomenon leaves virtually all observers spluttering for an explanation: And I don t splutter often What happened in 2015 coming out of China was unprecedented in magnitude, said Charles Collyns , chief economist for the Institute of International Finance , a global trade group for the financial industry. 44 45 What caused the polarity reversal? Continued tomorrow in Part 3 .] References ^ David A.
Smith (www.affordablehousinginstitute.org) ^ Part 1 (affordablehousinginstitute.org) ^ Barron s (www.barrons.com) ^ YouTube video of CSIS February 2015 symposium (www.youtube.com) ^ The New York Times (3 November 2015; dark green font) (www.nytimes.com) ^ Wall Street Journal (January 28, 2016 (www.wsj.com) ^ The New York Times (25 February 2016) (www.nytimes.com) ^ potential threat (www.nytimes.com) ^ both (www.bloomberg.com) ^ Venezuela (www.statisticsviews.com) ^ Argentina (www.reuters.com) ^ accurately reporting statistics got you jailed (www.economist.com) ^ turbulent markets (www.nytimes.com) ^ and their residency (affordablehousinginstitute.org) ^ More articles about Xi Jinping. (topics.nytimes.com) ^ positive news (www.nytimes.com) ^ Markit Economics (www.markiteconomics.com) ^ Caixin Media (english.caixin.com) ^ shut down the blog of Ren Zhiqiang (www.whatsonweibo.com) ^ loud, brash, and deliberately controversial (affordablehousinginstitute.org) ^ politically aggressive as well (www.economist.com) ^ had 38 million followers (www.whatsonweibo.com) ^ they re going to believe he was right (www.whatsonweibo.com) ^ Anne Stevenson-Yang (www.jcapitalresearch.com) ^ J Capital Research (www.jcapitalresearch.com) ^ August 23, 2010: Gleefully running up the debts (affordablehousinginstitute.org) ^ October 28, 2011: A little learning is a dangerous thing (affordablehousinginstitute.org) ^ July 29, 2012: I m shocked, shocked (affordablehousinginstitute.org) ^ August 23, 2012: China s cities and housing: Nothing outside China matters (affordablehousinginstitute.org) ^ August 25, 2012: China s cities and housing: Imperial economy is successful society (affordablehousinginstitute.org) ^ August 26, 2012: Suburb stuffing (affordablehousinginstitute.org) ^ September 17, 2012: China s cities and housing: Between observation and doctrine, report doctrine (affordablehousinginstitute.org) ^ July 22, 2013: China s runaway money train (affordablehousinginstitute.org) ^ December 16, 2013: Formula for an instant slum (affordablehousinginstitute.org) ^ September 19, 2014: Where the money goes, people will follow (affordablehousinginstitute.org) ^ February 1, 2016: Yuan to buy American housing? (affordablehousinginstitute.org) ^ June 26, 2006: Fannie Mae, the implied story (affordablehousinginstitute.org) ^ June 30, 2006: Part 5, Smoothing earnings with financial tricks (affordablehousinginstitute.org) ^ January 22, 2008: Who s next? (affordablehousinginstitute.org) ^ May 6, 2008: Catastrophe is a precondition to fundamental reform (affordablehousinginstitute.org) ^ December 4, 2012: Innumeracy precedes insolvency (affordablehousinginstitute.org) ^ October 7, 2013: The demise of deposit insurance (affordablehousinginstitute.org) ^ September 3, 2015: House and country (affordablehousinginstitute.org) ^ Charles Collyns (www.iif.com) ^ Institute of International Finance (www.iif.com) ^ Part 3 (affordablehousinginstitute.org)