A turning point for China?
By George Chen
The opinions expressed are the author’s own.
Is the train crash tragedy becoming a turning point for China’s political and economic development?
Frustrations among the Chinese public have been growing rapidly — at least on the internet if not yet in the streets. People are particularly unhappy with the way the Ministry of Railways has dealt with the train accident, which so far has cost 39 lives.
It has now turned into a full-blown crisis. Shen Minggao, chief Greater China economist for Citigroup, said in his latest research note to clients that the train tragedy could become “a turning point in the China growth model.”
“Authorities may choose intentionally to slow GDP growth gradually but firmly to 7-8 percent in following years and spend more time to fix the problems created by artificial fast growth,” said Shen in the note.
Shen’s comments have sparked a big debate online. Some young Chinese have said they are utterly disappointed at the way the government has handled the post-accident situation and don’t believe fundamental problems in China like corruption and bribery can be fixed or changed quickly.
I consider such hopelessness a big political risk for Beijing — even more risky than the growing tensions over the South China Sea these days. People losing not just confidence but all hope in the authorities is one of the gravest problems any government can face.
In the capital market, we see some Chinese brokerages still recommending investors buy some railway-related stocks that lost value sharply in the past few days due largely to growing concerns on the outlook for China’s high-speed train development and safety issues.
Goldman Sachs analysts said in a report the train crash accident may speed up the pace of reform of the Ministry of Railways and some listed railroad companies can benefit from this.
Before the accident, some asset managers selected some railway stocks as a big part of their portfolios, and you know the way Chinese asset managers like to invest when they want to make a big bet – they usually unite.
That is to say, if one big fund steps into the railway sector, others will naturally follow, and then a sort of investment alliance is formed in the stock market. This is the so-called win-win way that many Chinese asset managers are happy to work with and this could well explain why some foreign fund managers can easily get lost when they first come to invest in China.
The train crash last Saturday was unexpected, a so-called “black swan” factor to those fund managers, and now it’s apparently going to affect the performance of some big Chinese funds for the coming months.
Will the train crash trigger a market crash in China? This is certainly not the turning point for that Beijing wants to see in its economy.
George Chen is a Reuters editor and columnist based in Hong Kong.
Photo: China’s President Hu Jintao (L) looks at Premier Wen Jiabao as they leave after the opening ceremony of the National People’s Congress at the Great Hall of the People, in Beijing March 5, 2011 REUTERS/Jason Lee