The media seem to think it’s a really huge deal that investors in China’s stock market have not made any money since February. The Washington Post (3/9/15) told readers that it could even threaten the regime’s legitimacy, in a front-page story headlined “Stock Slide Sandbags China’s Leaders.”
The article begins:
For decades, the Chinese Communist Party has been able to keep control of democracy protests, dissidents, the legal system and the military, but it is now facing an even more intractable foe: a plummeting stock market.
Invisible and fast-paced, mutinous market forces have defied the party-led government’s efforts to arrest the month-long slide in Chinese stock markets. If this continues, the slump in stock prices could slow the economy and undermine faith in the party’s leadership and power, experts on China and economics say.
This is an interesting assessment. Those of us who are less expert on China than the experts consulted for this article might wonder how the regime managed to survive a stock market crash between October 2007 and October 2008 in which the market lost over 60 percent of its value. This is more than twice as large a decline as the market has experienced in the current downturn. In spite of this plunge, China’s economy grew more than 9.0 percent in 2009, although it did require a substantial government stimulus program.
The piece also contains this strange paragraph:
For decades, some enthusiasts have argued that China was the exception to the rule: that its farsighted leaders could make the transition to a more open economy while avoiding the debt trap that every other so-called miracle economy had fallen into since World War II. That idea could be the biggest casualty of the crash, both at home and abroad.
It’s not clear what the article means in asserting that every other “so-called miracle economy” has fallen into a debt trap. South Korea and Taiwan have experienced rapid and sustained growth for more than five decades, with only brief periods of recession. As a result, South Korea now has a per capita income that is roughly 90 percent of that in the United Kingdom. Taiwan’s income is more than 15 percent higher. Are these countries not supposed to be “so-called miracle economies,” or is this the record of economies mired in a “debt-trap”?
Addendum: The day the Washington Post‘s story appeared in its print edition (7/9/15), China’s stock market rose 5.8 percent.
Economist Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. A version of this post originally appeared on CEPR’s blog Beat the Press (77/9/15).