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One-man rule can never compete with a free market, and that's very evident in the plunge in the value of Chinese companies. Xi Jinping, now fully in charge of China, may think he has reached the pinnacle of power, but the market is thinking he's doomed to defeat.
These two charts say it all:
Chart #1
Chart #1 compares the MSCI China Index (priced in Hong Kong dollars) to the S&P 500 index. By these measures, Chinese equities are cheaper now than they were in 1995, while US equities have increased by 176%. (The chart starts in 1995 because that is just after China massively devalued its currency and began opening its economy to the world.)
Chart #2
Chart #2 compares the Golden Dragon Index (Chinese companies that trade in the U.S.) to the S&P 500. The recent destruction in Chinese valuations shown in this chart is more evident: the Dragon Index today is down almost 80% from it's Feb. '21 high.
One-man rule can never compete with a free market.
6 comments:
Scott - Always great analysis and one of my favorite sites.
I am curious about your thoughts on China's ability to create "high-quality" growth. I am taking that to mean growth from Consumption as a larger percentage of the economy. What would it take? Would a political regime change need to happen? Curious if you even think China has a chance at growing that per capita income over the medium/long run...
Rich
I don't see how China can be better off with a supreme ruler in charge who wants zero Covid (among other craziness).
China is a huge topic, and in one layman's opinion (me) does not present happy prospects.
A side topic is why Disney, BlackRock, Tesla, Apple, NBC-Universal, Wal-mart, Silicon Valley and Wall Street et al are just delighted to do heavy business in communist China---one of the world's most repressive regimes.
The Biden family accepted millions from entities connected to the PLA, but don't kid us, any number of GOP'ers would have done the same, or have.
In fact, William Cohen, a Republican but the Secy of Defense under Clinton, is today the don of pro-China lobbyists. Cohen has said China is a competitor, the same way Germany, UK and France are competitors.
Egads, you can't make this stuff up.
As SG points out, the sad thing is, China doesn't need to do this. The CCP doesn't need to repress anyone to have higher living standards---quite the opposite.
Sure, any people may want self-determination, or even to have social welfare systems. Fine. But what Xi-CCP is doing...will likely end poorly.
From reading Gregory Copley’s fascinating articles (in The Epoch Times); here’s a paraphrasing of a few of his contentions:
China’s communist party (CCP) has been steered by Xi into ‘Ultra-Moaism’, which holds that the private sector has to be severely restricted - to maintain party supremacy with totalitarian control of the country.
The recent decades’ rise of living standards and wealth outside party control is seen as a threat by Xi and his adherents, as they do not see how it can be continued, and are horrified at the thought of any eruption of uncontrolled public anger.
So Xi directs more resources towards internal repression than to his military, and his lockdowns have nothing to do with health but are used to quash opposition to Xi’s rule.
Gregory Copley expects Xi to accelerate in his ultramaoist course no matter what suffering it will cause.
Grechster: mostly free markets.
Wow! Simple but super enlightening. Thank you Scott!
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