August 15, 2022
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Chinese market crash may affect Asia badly
Recent Chinese market crash can lead to a massive crisis as small economies will suffer badly. This is not to say that it will not affect big or medium sized economies but overall it will churn a new shadow about the prosperity of Asia. Indeed, Asia is the driver of world economy today. In the post-2008 financial crisis era, it is neither Europe nor America which is able to insert massive economic growth that is being expected. If Europe fails it will have severe consequences. In case China fails or growth dips a nose dive, then Asia will be badly hit. Ultimately, this may alter geopolitics in a big way. Economic growth will hit social progress. Social instability will give rise to political instability. The inter-connected globe we live in can affect each one, directly or indirectly even if a crisis erupts thousands of miles away. The bright example is Greece crisis. Now, the market crash in China involving 4 trillion USD since last month can create havoc across the globe if any further decline is not arrested with credibility. In fact, markets need credibility which will in turn infuse confidence. The problem for many FIIs and Chinese investors is they hardly have a direct access to political establishment in Beijing. The FIIs based in Singapore and Hong Kong earlier used to have direct access to Chinese political leaders whether it is Deng Xiaoping, Jiang Zemin or Hu Jintao. But this is not the case with Xi Jinping. The lack of access baffles many investors whether to stay in or stay out. The money never knows to hang in the middle. A slight mistake in decision making can ruin the prospect for the investor who can suffer billions of dollars over night.

Now many investors privately ask whether China can really wriggle out of this Lehman crisis. Or the state will go down from here after climbing top of the hill. For many analysts, the Chinese economic growth will not witness the same prospect it had seen for last two decades. Then what is the way out. Meanwhile, China has pumped almost 300 billion dollar and another 200 billion is in waiting for further infusion into the market. But the problem lies elsewhere. The sudden fall of Chinese stock market is being attributed to ongoing crack down on Chinese elites or corrupt elements who may have got into wrong doing while becoming rich. Once Deng Xiaoping had said that let some of us become rich first. This principle had allowed lot of Chinese elites to become rich without following rules and regulations. This is not to say that they had no connection with top leaders. But the proportion has reached an alarming stage where the elites are now trying to change the politics of the state. This may have in the back of the mind of Xi that if the same league of elites are allowed to operate then he will not be able to control the state the way he wants. In China, a lot happens behind the scene. Now the anti corruption drive against established elites has created a ruffle. The so-called gang of four - all of whom have been arrested by the state and facing corruption charges, had allegedly planned a coup and their arrest has triggered a panic reaction. There is no doubt ever since Xi came to power a lot of discomfort among Chinese elites is visible. More than 1100 elites have already pulled out of China and 400 elites are waiting to emigrate to foreign destinations in Europe and North America.

All this has made China no more a safe destination for the elites. These are the investors once caused massive economic growth. They infused more than 1500 billion USD over two decades. But with the change of wind, they are ready to depart to another destination. Over all this will have huge impact on Chinese state controlled economy which is by nature risk aversing. Thus, China will intervene in the fall of such situation. Now, this presents a discomfort to new generation of Chinese leaders who had set a vision for themselves and rest of the world. The slowdown of Chinese market can create massive confusion which smaller or medium sized economies cannot cope up. The investment assurances China had given to countries like Indonesia or Sri Lanka or Thailand may suffer badly. The ambitious one road one belt project to link Asia with Europe can also be affected in future if the crisis is not averted quickly. Although Xi has branded himself as a visionary, it is time he should first be a realist. In fact, sometimes it is better not be so successful so quickly. This draws too much attention. Even if Xi is a strong man by all accounts, accepting realties or making correction should not be seen as defeat or loss of purpose. There is always second time in life. The FIIs or other investors will not be kind to China or any country. They understand hard currency that is profit margin. In fact, Asia had narrowly escaped the great recession that hit America but this time Chinese market crisis can plug all the holes to escape. Thus, it is high time to put economy first and leave politics to take some rest, at least for a while. Or great power dream may dry forever.