Opinion

George Chen

A turning point for China?

By George Chen
July 28, 2011

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

Comments
3 comments so far | RSS Comments RSS

The Chinese as a result of decades of communism are accustomed to government steering the ship including that of their new economy. Here in the US we put our faith in the “unbridled free market capitalists” with our now devastating economic failures. There always is the need for balance and someone needs to be watching those in power and control. I wish the Chinese well and hope that they can resolve their social, safety and environmental issues far better than we “exceptional” Americans have.

Posted by seattlesh | Report as abusive
 

seattlesh,

It is easy to judge the United States when you have no experience living elsewhere. As for social, economic, environmental, and safety issues, America is one of the better nations in which to live. China is more chaotic than they let you believe. After 7 years in this country, as well as other, Americans who complain about what they have, which is a great life, are just cry babies who want more than they deserve. American do live exceptional lives; most of us just don’t know it.

Posted by hellomyman | Report as abusive
 

Although not having been to China, I am truly impressed by their progress in 60+ years. Not only has their standard of living improved immeasurably, they seem to run their economy pretty well even with, or maybe because of government oversight, which was woefully lacking in the US pre-recession. I hope the US and China don’t engage in future military or economic brinkmanship, as both have too much to lose. China deserves respect, but I am glad to be an American.

Posted by kolea | Report as abusive
 

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