The Hang Seng Index opens an amazing 20% up at 27,500. OK, so it doesn’t (it actually starts the day down a tiny fraction). But it would have done if the South China Morning Post’s front page were to be believed. To read the SCMP, you would get the impression that the Chinese government has decided to go right ahead and make the country’s currency fully convertible, and the wall of money we were promised six years ago is about to come crashing into town.
Look for details, however, and all you get is unattributed vagueness in the passive voice, like “It had been speculated earlier that full convertibility would come by 2015.” Or, as the Standard puts it, “It is believed that Yuan capital account convertibility could be achieved in 2015 at the earliest.” For a clearer idea of what is going on, we turn to Reuters (few other channels are even mentioning this semi-story about another outbreak of reform waffle), which tells us that China’s cabinet has called for plans to ‘help achieve’ convertibility at some stage.
In other words, the only body in the country that can authorize convertibility is openly saying that it still hasn’t got around to planning such a move. Which is hardly surprising. Just last week, the SCMP quoted economist and HK$ peg designer John Greenwood as summing it up nicely: “No country ruled by a communist party has ever permitted free capital flows.”
Karl Marx thought communism would follow what he saw as late-stage capitalism, and would therefore happen first in Britain. In fact, communist regimes took over in societies that had recently been feudal. In the case of China, that meant a Leninist culture of absolute, tight-gripped control was grafted onto an old Confucian imperial one, with a bit of KMT warlordism thrown in. The Chinese Communist Party cannot permit free capital flows for the same reason it cannot permit a free press, a free judiciary, a free legislative branch, free banks, free churches, free universities or free civic and charitable movements: it must control, control, control.
A freely convertible Yuan would require that the Communist Party allow free global markets to decide either the exchange rate or (if they kept the currency pegged) the country’s interest rates. For ‘free global markets’ read ‘evil foreigners who are forever plotting the overthrow of the regime in Beijing in order to keep China down’.
But there is more than just paranoia going on here. By denying the masses the right to move money into another currency or country, the Chinese government forces them to put their savings into local banks. (Alternatives are dismal local stock markets, inflated property or informal and risky savings-and-loans sharks.) The banks are, needless to say, state-owned and pay depositors lousy interest. They can therefore lend to other state-owned companies at very low rates, enabling those corporations to compete unfairly with private or foreign rivals, thus accumulating extra market share and assets. The bosses of these companies are family members and buddies of the country’s leaders, and they stuff their pockets with much of the proceeds, which then leaks out into Macau casinos, Hong Kong money-launderers and Vancouver real estate.
So a non-convertible currency forces the ordinary population to transfer part of the wealth they earn to the modern-day aristocracy. Same old feudalism, in other words. (With Chinese characteristics!) And if you were a member of the Politburo, you wouldn’t have any plans to change it either.
Money again! Don’t end up the richest man in the cemetery. We love you far too much.
I’d sooner have feudalism with Chinese characteristics than the British type – one third of British people had to borrow money last month to buy food. And rich people still live in castles there!
Meanwhile, suicides in the US of A in the 35-64 group have risen 25% in ten years. There are now more suicides than traffic deaths.
Feudalism – Marx probably thought Britain was still in it when he walked down any Victorian street. In Hong Kong, he would only have to watch the rubbish scavengers.
True democracy, real money, same battle as we used to say, more or less, in the 60s. Like the $1 tickets to Shangri La, or at least to Kunming, the promise of autonomy for HK or unfunny money is just the carrot dangled in front of the donkey that never gets any closer.
Even Hemlock and co are a little naive to believe half-promises made yonks ago: the reality is 2015 or 2017 UP. And this is why the pan-dems are forced to be so intranisgeant — and why the Gloria Wus, Chuganis and other snide and short-sighted commentators fail to understand what they are trying to do for HK.
I am all for democracy, liberty and 74 varieties of ice cream.
But what do you folks think will actually change when the moment finally arrives ?
Is ‘Bela’ really the secret wife/partner of Long Hair?
They certainly seem to share the fantasy that the only system worse than a communist dictatorship is a capitalist democracy AND that there remains the ever elusive viable alternative of a socialist democracy. Suggest they move to Venezuela but better be quick as it might not be so pleasant after their oil runs out!
Hemmers : you have really been reading too much of Tom n’ Jake’s financial bedtime stories these past few days. You have become much too pessimistic and even worse you are beginning to sound really unpatriotic
Don’t you realize that if / when China’s capital account is finally opened all the Chinese will still patriotically keep their money under their mattresses ?
Young Chinese have no money to stick under the mattreses. They spent it all on Louis Vuitton handbags (clutch purses for the men) or iphones. They’re going to have the same consumer and household debt problems the west faces in 10-20 years time if not before and the financial collapse that happens to coincide with that, if not before, won’t be fun. Society will be even less harmonious then.
@ pcatbar : I think that Bela IS Long Hair ( without his wig) !
Great post today, one of your finest. Spot on throughout.