Sept 10, 2015 (LBO) – China’s stock bubble and subsequent crash that sent shockwaves across the global economy is the direct result of authoritarian policies, Razeen Sally from the National University of Singapore told Lanka Business Online.
“The stock bubble is the direct result of government policies because the state-run financial system has few other profitable outlets for personal savings,” he said.
“It shows the contradictions of the Chinese economy and how difficult it is to reform the economy,” he added.
An associate professor at the Lee Kuan Yew School of Public Policy in Singapore, Sally has called for simple, clear and predictable policies in Sri Lanka for the economy to move ahead. This requires simplification, and where possible, elimination of import tariffs and non-tariff barriers.
“The government’s ham-fisted response was all about authoritarian politics,” he said referring to heavy Chinese state intervention banning sale of stocks by major shareholders, and making state-owned companies buy stocks and support the yuan.
“I think recent events show increasing tensions between a market economy and authoritarian politics, which may get worse. The crunch for all this is still about a decade away,” he said by email.
Citibank expects China’s economy to grow by 6.3 percent in 2016, down from 6.7 percent seen previously. For 2017, growth is forecast to pick up to 6.5 percent, although this is below the 7.1 percent previously forecast by the bank.
Sally doesn’t believe the Chinese economy as a whole is crashing because “stock markets are still a small part of the overall economy — property markets are much bigger.”