Recently, the RMB exchange rate has depreciated against almost all currencies, and the depreciation against the USD is particularly huge. With the menace of the international trade frictions, even before the trade war has started the Chinese stock market tumbles in the midst of market panic. Under such situation, the risk aversion sentiment of Chinese financial markets began to rise. Recently, a report on the financial panic allegedly from a national key financial think tank was circulated on the Internet, further igniting the panic of the market.
Although the report of this national key think tank does not seem to be released at the right time, the content of the report is not an early warning of future forecast, but more of an after-the-fact commentary. For the so-called financial panic, we don't think there is a financial crisis right now. We believe that China has actually been in a certain degree of economic crisis in the past, but it was not serious, yet now there it appears to become more serious.
During the reform process, the main issue now is that many cadres have panicked and lost their sense of direction, and it should be noted is the cadres that are panicked and not the market. China's economy is a "cadre economy," and power constraints lead to resources in the hands of cadres, so if cadres are panicked, they will go wrong; depression, financial panic, and other incidents will then appear. Because this is a bureaucratic system, when the upper tier of the system is in anger, the rest will be in a mess. Therefore, the financial clean-up and rectification cannot be simply understood as cleaning-up and keeping the financial market calm, because no such financial market ever exists in the world.
As long as the market exists, this would be like Tom and Jerry. As long as Tom is still useful, nothing serious will happen. Therefore, the focus of financial clean-up and rectification should be mainly about Tom, while Jerry comes in the second place. If Tom is no longer useful, then they will never be able to catch all the Jerries. It would be as if the cats keep the mice and catch them for pleasure, which will cause the market to be in a mess.
What are the "Toms"? The answer is the rule of law, rules, policies, administrators, supervisors, and public opinion; in another word, the "Toms" are the cadre. What then, are the "Jerries"? The "Jerries" are those who manipulate with money. These "Jerries" often mix with actual business people and even tied up with various policies, and because the mice are eager to make money, each of them is an adept in policy research, and even become integrated with the "Toms" that know the situation well. Under such circumstances, the financial clean-up and rectification seems to require some strategic changes, focusing on cleaning up the "food" that the "Toms" and the "Jerry" rely on. This should be handled gradually, especially in the current situation where the problems have long been accumulated. The cases of billions of dollar would be impossible to happen in merely one or two years' time.
The characteristic of China's legal system is that the upper level is the principle of the civil law system; which means that they decide what should be done. The lower level is the principle of the British and American legal system; those in this level would try to do what is not disallowed. The principles of the upper and lower levels are fundamentally conflicting, and this has happened for a period longer than a year or two. If the problems accumulated in this way are to be cleaned up and rectified in a single attempt, the market would have to close down. The problem is that the timing of the major clean-up and rectification is not good. If we recognize that China is in the stage of transformation, then there should be changes towards a balanced society. As emphasized by the 18th and 19th National Congress, then finance and consumption are growing. If the financial market is being cleaned-up at this time, then it matters not only to the financial market, but will definitely affect other areas in the economy. The various panic and depression talks would naturally happen.
It is now a chaotic world with conflicts but with fading boundaries and increasing irrationality. It has become a world based entirely on sentiments and emotions. In such a world, stability can never go wrong. We have always emphasized on "stability" and talked about it for almost 10 years. From the current policy operation, it seems that it is difficult for the government to utilize stability measures; instead it adopts the swift and comprehensive measures that cause panics.
If theory of finance is to be emphasized, then it should be the "macro finance". What is taught in the universities is the "accounting finance" which is of little use now, and can only be useful in banks. , securities and institutions, that is, in the enterprise. The big financial theory is about the situation, that is, policy relationship. From this perspective, the current situation is not an ideal one. The policy relationship is having deep conflicts, and there are many factors in the internal and external issues. It seems that stability would still be important, and things need to move a bit slower. Issues need to be resolved before the cat-and-mouse game can be tackled
Final Analysis Conclusion:
China's economic and financial markets are in a state of change, and they have placed higher demands on policy levels. Whether it is to ensure economic growth or financial rectification, this all must be based on the principle of stability; problems need to be resolved first before the Tom-and-Jerry game can be dealt with.
