The Greek crisis may be concealing another crisis:
While all Western eyes remain firmly focused on Greece, a potentially much more significant financial crisis is developing on the other side of world. In some quarters, it’s already being called China’s 1929 – the year of the most infamous stock market crash in history and the start of the economic catastrophe of the Great Depression.
In any normal summer, a 30pc fall in the Chinese stock market – a loss of value roughly equivalent to the UK’s entire economic output last year – after an ascent which had seen share prices more than double within the space of a year would have been front page news across the globe.
The dramatic series of government interventions to stem the panic – hitherto unsuccessful, it should be added – would similarly have been up there at the top of the news agenda. Yet the pantomime of the Greek debt talks, together with the tragi-comedy of will they, won’t they leave the euro, has relegated the story to little more than a footnote – even though 940 companies, more than a third, have now suspended trading on China’s two main indices.
By now it is clear to everyone, even the most hardened neoliberals, that what is going on in China is nothing short of the complete collapse of a centrally-planned market into sheer chaos, a bubble which while punctuated by the occasional dead cat bounce, is now finished and it is only a matter of time before all the “nouveau riche” farmers and grandparents see all their paper profits wiped out and hopefully go silently into that good night without starting mass riots or a revolution.
Since by some counts there are anywhere between 20 and 40 million of them, it could be a close call, one which the Politburo would dread to see to its fruition and as such the Chinese government together with the People’s Bank of China have engaged in the most desperate and unprecedented series of market bailouts, one which puts good ‘ole plain vanilla QE in the “quaint” category.
But most curiously, it wasn’t until China literally threatened short (or any other for that matter) sellers with arrest last night, that the market finally staged a furious rebound.
Will that rebound hold, or like every other dead cat bounce in history, fade quickly if not quietly into memory, we shall see over the next several days.
The immediate repercussions of the crash, in a week when Europe is preoccupied with Greece, have largely played out inside China. But in a world that has come to rely on China to keep the global economy ticking over, China’s risk is now everybody’s risk.