The Shanghai Stock Exchange Index recently entered free fall. Now comes the story that Gov. authorities in Beijing are looking at a $15 billion bail out program to staunch the decline. The market has had a nice bounce on this rumor, although its position is still precarious. Through constant dilution of the market by conversion of state owned enterprises, the Gov. has made a mess of its native equities markets, including the Shenzhen Exchange. It is another example of a rapidly growing economy which has far outstripped the financial foundations needed to keep it on a sound footing.
China is planning a grand entrance on the world stage as a modern, major nation when it hosts the 2008 summer Olympiad. Rest assured it will be quite a show. Next year, Beijing plans to begin letting major foreign owned financial companies in to China to compete. Beginning with the year 2007, Beijing will become preoccupied with The Games set for summer '08. So, I figure there is an eighteen month window for Beijing to begin rapidly reforming its financial system before it is too late to keep the economy from a slide brought on by a weakened financial foundation. If Beijing fails to take action, it would not surprise me if the 2008 Games turn out to be a grand finale for the capitalist revolution underway since 1979.
Big trouble in Big China by 2010 would be big trouble for everyone.
To see a three year chart of the SSEC, click here.
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