George Chen

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

By George Chen
The opinions expressed are the author’s own.

Karl Heinrich Marx spent most of his lifetime studying how to distribute social wealth fairly, and later Vladimir Ilyich Lenin concluded that violent revolution should be the way. In China, Mao Zedong picked up some ideas from Marx and Lenin and a “new China” was eventually created. We all know what has happened since then.

Today in Shanghai and Chongqing, two of the richest cities in China, the local governments discussed how to distribute and balance social wealth, ideally for every citizen in the country. They decided to use financial tools rather than revolution, hence the new property tax.

Chongqing Mayor Huang Qifan said could help the city increase its revenue from the property sector to 200 million yuan (about 30.4 million U.S. dollars) this year. Huang was considered a Liberal as he helped Shanghai open up its Pudong New Area, the emerging Wall Street in China.

The reaction? An online poll on China’s top portal Sina.com showed this morning that nearly 60 percent of respondents voted against the property tax plan and more than 40 percent said they did not expect the new tax to lower property prices. Many analysts and officials in other cities are now interested to see how Shanghai and Chongqing are going to collect the tax –0.6 percent for Shanghai and 0.5-1.2 percent for Chongqing, both announced late on Jan. 27 and effective from Jan. 28 — in a peaceful and practical way.

Others cast doubt over the policymaking process — shall we have a consultation with taxpayers or at least go through local lawmakers, who are considered “representatives of the people”, for ideas before making a decision?

The mayors of Shanghai and Chongqing, picked by the central government as the two pioneer cities for property reform, both said the new tax they plan to collect, largely from the fast-growing middle-class, will mainly be spent on building more cheap, affordable public housing for low-income people, hence redistributing social wealth. A very socialist idea.

In my humble view, three factors are worth bearing in mind: First, all things considered, I don’t think the new property tax will bring prices down (read my column “Property under attack in China” on Jan. 27). Second, the property tax is a strong political signal from the government aimed at winning the hearts and minds of the poor, but it could certainly hurt the feelings of the middle-class.

Third but not least, watch out, Hong Kong, Australia, Canada and so on, you may see more Chinese immigrants buying property, little by little, if not in a rush from tomorrow.

So, should we pay a bit more attention to Hong Kong developers? Maybe they’ll see better earnings this year if there are more property buyers from the mainland. Oops! What is Hong Kong Chief Executive Donald Tsang going to do to keep the city’s property prices from climbing?

That’s another story, but at least most people in Hong Kong don’t believe that socialism can really work.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: Portraits of Russian and Chinese communist leaders (from-L) Karl Marx, Friedrich Engels, Vladimir Lenin, Mao Zedong, Zhou Enlai, and Deng Xiaoping are displayed at a bookstore in Chengdu, capital of China’s southwestern Sichuan province, July 19, 2004.REUTERS/Bobby Yip