06 July 2015

Stock Slump Casualty: The Myth of Chinese Exceptionalism

Andrew S. Erickson and Gabe Collins, “Stock Slump Casualty: The Myth of Chinese Exceptionalism,” China Real Time Report (中国实时报), Wall Street Journal, 6 July 2015. 

China’s dramatic stock market plunge and the resulting uncertainty as to how Beijing will try to manage the situation are calling China’s economic growth and political stability into question. This financial risk story could ultimately have much greater implications for the global economy than the Greek debt drama much of the world is currently fixated on. Yet it is also one of widespread myths and hubris.

As data points fly later today and over the course of the week, it’s important to consider the structural factors behind the current difficulties. The more one considers the larger picture, the less the latest developments should be surprising. The bottom line is that China is not as exceptional as its leaders claim, or as some Chinese and foreigners imagine. It is not immune to laws of economics, the business cycle, or the gradual slowing of national economic growth and power accretion that typically besets maturing societies. And Beijing has not created a superior hybrid state-market model that can miraculously reap the benefits of more market- and legally-oriented economies while avoiding their drawbacks. Instead, it has created a massive bureaucracy that is strong and concentrated in some respects, but weak and conflicted in others. Moving forward, in assessing China’s prospects, analysts need to take a hard look—in part by considering the issues outlined below. …