Recent political intrigue between the White House and China has caused Chinese stocks to tumble.
Losing as much as 6.6 percent during mid-day trading, the markets reacted negatively to the trade war suggestions.
As stocks dropped, major Chinese oil and finance companies followed suit. However, the government intervened with large influxes of cash — propping up the companies involved and bringing the market up off its lows.
Chinese Economic Intervention: A Mixed Bag
Not unlike the United States Federal Reserve, the Chinese government has seen fit to manipulate markets using liquidity. During recent months, as the trade war with Trump’s administration has escalated, these interventions have been increasingly necessary and have maintained relative stability in the market.
Nevertheless, the injections of cash have mixed reviews. For example, a portfolio manager at Keywise Capital Management Beijing Ltd, Raymond Chen, said:
The government needs to come up with a basket of solutions to alleviate the market’s key concerns, rather than resorting to a short-term boost to stock prices, which would only prove to be futile and nothing more than a window-dressing act.
Such evaluation reflects a growing sentiment in economics. While governments are able to intervene, the actual results are anyone’s guess.
The recent tightening in the United States by the Federal Reserve had caused increasing fears that the economy is stagnating.
Both the Chinese and American governments are seeking to manipulate their respective economies through interventionist policies. However, as time passes, it has become increasingly clear that no government really understands the impact of these moves. Instead, they’re playing with a blank playbook.
For example, the market in China responded well to cash injections in 2016-2017 — but the government created a $5 trillion selloff in late 2015 with the exact same policy decisions. The Fed has had similarly mixed results, causing recessions due to tightening policies in more than 75 percent of the past events.
The chaotic results have led to a cry for a more ‘hands-off’ approach to economics. While centralized authorities can provide stability, they often create the problems they’re seeking to solve.
A decentralized payment methodology would provide stability, globalization, and a less controlled environment for growth. A movement toward Bitcoin (BTC) and other crypto assets in recent months reflects this desire for autonomy.
Do you think the Chinese state-backed funds will buoy the market, or will government intervention on both sides of the Pacific cause massive economic problems? Let us know in the comments below!