The Chinese stock market has fallen 40% from its 2015 peak. By comparison the US market is only 10% down from its 2015 peak, and the Euro zone only 15%.

House prices in major Chinese cities are out of reach of most employees. 

Air quality in the same cities is poor because China relies disproportionately on coal as a source of energy. 

Meanwhile China does not have a comprehensive welfare state, so Chinese families have to rely on savings, sometimes in the form of stocks and shares, and house property, to provide for their retirement. The fall in the stock market will thus have a direct effect on many Chinese families.

I have visited China a number of times in the last few years. 

On one of those visits, in 2013, I drew the attention of my Chinese audience to the then latest IMF report on the country.

It contained warnings that will sound familiar to those who have studied recent Irish economic history.

The IMF talked, even then, of the risks in China of 

  • “a steady build up of leverage eroding the strength of the financial sector”,
  • “a boom in non traditional sources of credit”, and of the need to take
  • “steps to reduce moral hazard to ensure that banks do not engage in potentially destabilizing competition” .


On the other hand, The IMF recognised that China has very well capitalised banks.

Most commentators believed that the Chinese Communist party, with its immense concentration of talented people in key positions, would be able to manage the huge structural changes required in the Chinese economy. It was believed they could impose technocratic solutions more easily than would be possible in a democracy.

The changes required include

  • a  managed  dissipation of the stock market and housing bubbles, 
  • a shift China away from reliance on investment in physical infrastructure to support the economy, to a  western style reliance on consumer spending.At one stage China was pouring up to 40% of its GDP into physical investment. When one is investing to that extent, one is bound to be putting some of the money into projects that will never yield a return.
  • a shift away from coal to cleaner energy sources and
  • the inauguration of a welfare state which would facilitate the development of a consumer led economy and less speculative investment by savers trying to provide for their old age


The fact that the Chinese authorities have now had to revert to a policy of currency devaluation is worrying.

It suggests that the authorities are not as firmly in control of the situation as one might have thought, and may not be able after all to manage the structural changes required, without the sort of political turbulence we have seen in democratic countries.
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