China

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The World This Week: Chinese Stocks Dive and Refugees Rise

Crashing Chinese markets, the Greek debt saga, protracted conflicts and a refugee crisis are causing anxiety worldwide.

Even as the Greek debt crisis continues, Chinese stocks have dived to new depths. On July 7, trading in over 90% of the 2,774 shares listed on China’s exchanges was suspended. Share prices have fallen by a third in less than a month and $3.5 trillion of wealth has been wiped out as a result. To put matters in perspective, Greek debts total a mere $367 billion.

The Chinese government has taken drastic measures to halt the slide. It banned major investors from selling shares and ordered some big players to buy them. It also prohibited short-selling, the practice of borrowing shares and selling them in the hope of buying them back at a cheaper price. Authorities also suspended initial public offerings. In addition, they injected a huge amount of cash into the market through market lending.

In a throwback to the days of the Great Depression, many Chinese men and women have been borrowing to buy shares. Authorities worry that the stock market crisis may spill over into the wider economy. Their efforts did seem to have some effect, with Chinese shares achieving their biggest two-day gain since 2008. Fidelity Investments, which manages more than $2 trillion, declared that “the worst is over” and that it is now time to buy Chinese shares.

Despite all the government action, the Chinese economy is in trouble. China’s bold fiscal expansion after the 2008 crisis stemmed an economic meltdown but fueled a massive real estate bubble. Property firms took on large debts from banks to construct huge housing projects. Local governments created financing vehicles to fund massive construction projects such as airports, stadiums and ports that they did not really need. The government views the stock markets as a way for companies to raise money directly from the public instead of borrowing from the banks. However, the people themselves have borrowed from the banks, short circuiting the grand design of their leaders.

China’s leaders are in a bind. If they do not prop up their stock markets, many retail investors will be crushed by debts they cannot pay back. This might cause social instability and lead to protests. However, if they keep propping up markets, then they are serving champagne to keep a party going when everyone has drunk a touch too much. This will certainly cause a hangover.

The truth is that China’s financial system is unhealthy. The Chinese are still a nation of savers. Yet banks offer a miserably low rate of return on deposits. This financial repression allows companies and individuals to borrow cheaply. So, risk takers borrow from banks and invest in real estate or stocks for quick gains. Their operating assumption is that the government will step in if things go bad. This assumption distorts incentives, amplifies bubbles and transfers risks to the taxpayer.

At some point, China has to put an end to the borrowing mania that has gripped the country. Chinese debts have quadrupled since 2007. They have risen from $7 trillion in 2007 to $28 trillion in 2014. This cannot continue ad infinitum. China has to reform its banks. They need professional management, market discipline and autonomy. Eventually, the Chinese have to write-off their bad debts instead of doling out more debts to keep bubbles going.

As the Chinese ponder their debt problem, Europe is painfully lurching through its debt crisis. The Greek government kicked out Yanis Varoufakis, its charismatic finance minister. Prime Minister Alexis Tsipras then submitted a new proposal that includes much of what Greece’s creditors want. He is wrangling for a new three-year bailout amount of €53.5 billion, about $59 billion. The French support the proposal and even the International Monetary Fund (IMF) is talking about debt relief.

Yet the crisis continues. Greek banks are insolvent. So, the bailout amount will exceed $59 billion. Will the likes of the Dutch, the Finns and the Slovaks cough up the cash? More importantly, what will the Germans do?

Many in Germany believe the euro is an albatross around their neck. Instead of throwing good money after bad, some would prefer Grexit: Greece leaving the euro. The indecisive German Chancellor Angela Merkel will finally have to make a tough decision.

As economic woes hit China and Europe, Burundi is on the edge of bloodshed again. President Pierre Nkurunziza has decided to emulate other African strong men and defy the constitution by seeking a third term. Security forces and Nkurunziza’s cronies are attacking his critics. The United Nations human rights chief has warned that an “explosion of violence” is imminent.

In Egypt, Nigeria and Yemen, bloodshed continues. The Italian Consulate was bombed in Cairo on July 11. Boko Haram, the infamous Nigerian Islamist insurgent group, has been on a rampage again, slaughtering 225 people in the last two weeks. Hundreds of civilians have been killed by Saudi Arabia in airstrikes as it tries to crush Shiite Houthi rebels south of its borders in Yemen.

Bloodshed is increasing the number of refugees. Due to the civil war, 4 million Syrians have fled the country. Of these, 1.8 million are in Turkey, 1.1 million in Lebanon, 630,000 in Jordan, 250,000 in Iraq and 130,000 in Egypt. Another 7.6 million have been displaced within Syria itself. Many live in abject poverty and are increasingly desperate. Some refugees are traveling all the way to Europe. About 1,000 of them, largely from Africa and the Middle East, arrive daily in Greek islands. So far in 2015, 77,100 refugees have already entered Greece. More will keep coming throughout the rest of the year, straining the already stretched fabric of Greek society. Other European societies face a similar challenge and have to guard against the rise of anti-immigrant sentiment.

*[You can receive “The World This Week” directly in your inbox by subscribing to our mailing list. Simply visit Fair Observer and enter your email address in the space provided. Meanwhile, please find below five of our finest articles for the week.]

Refugees Are Humans Too
Refugees

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If refugees formed a country, it would be the 24th most populous in the world.

To paraphrase William Gibson, the post-apocalypse is already here—it’s just not evenly distributed.

Many of our post-apocalyptic stories—Mad Max, The Road, World War Z—feature desperate people on the move in a friendless and resource-poor environment. The world hasn’t ended quite yet, but these modern nomads have nearly lost hope. Something terrible has happened in the past, and the future looks no less bleak. They are propelled, often without volition, from tragedy to tragedy. It’s an endless series of frying pans and fires.

That’s “reality” at the Cineplex. Unfortunately, it looks a lot like the reality of a refugee. Like the movie denizens of the dystopian future, today’s refugees are fleeing the end of their worlds and hoping to find safe haven somewhere else. The odds are long. Just ask the border guards.

According to the latest United Nations (UN) report, we face an unprecedented refugee crisis. Nearly 60 million… Read more

Omar Sharif Didn’t Have to Play a Terrorist
Omar Sharif

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Egyptian actor Omar Sharif was a citizen of the world, someone who crossed cultural boundaries with apparent ease.

Omar Sharif has died at 83. Born as Michel Chalhoub in Alexandria to Lebanese Christian parents in 1932, he changed his name and converted to Islam in 1955 in order to marry his co-star, Faten Hamama.

The two were a power couple in the Cairo film world of the 1950s, a time of Egyptian nationalism and a growing experiment with socialism under President Gamal Abdel Nasser. It was a more secular time, when few urban Egyptian women veiled, and the feminist movement had successes.

Sharif was catapulted into world-wide fame because, in 1962, director David Lean cast him in the role of Sharif Ali in Lawrence of Arabia.

He later worked again with Lean in the 1965 Doctor Zhivago, based on the novel by Boris Pasternak. In 1968, having already played a range of characters from Genghis Khan to a German military officer, Sharif was cast as… Read more

World Economy Needs a Bernie Sanders Presidency
Bernie Sanders

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Bernie Sanders seems to be the only US presidential candidate who is willing to talk about the world that everyone else sees.

“Socialism” has long been a bogeyman in American politics. The very term is anathema; practically alone it derailed Hillary Clinton’s health care proposals of the 1990s.

But during that time, in a socialist nation, economist Thomas Piketty was working methodically to collect hundreds of years of economic data. The result, his monumental work Capital in the Twenty-First Century, was a surprise best-seller in the United States after being hailed in Europe as the most profound study of economics since Karl Marx invented the field.

Piketty’s theories describe basic economic forces that are, in a sense, “natural laws” of economics. And the only candidate in the 2016 US President Election addressing himself to Piketty’s findings is the deeply resonant Bernie Sanders.

The general thrust of Piketty’s theory is straightforward. Wealth naturally aggregates toward itself. It’s the economics version of “like attracts like.” Read more

India’s Major Push into the Limelight
India

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With momentum on its side, the Indian economy finally has an opportunity to achieve its potential.

Some may argue that the Indian economy has been in the limelight for the past 20 years, but this time it seems to be different. India’s economy was liberalized in 1991 in the aftermath of the Soviet Union’s collapse. Soon after, it left behind the Hindu rate of growth.

However, India stumbled again under the previous government. The United Progressive Alliance (UPA), led by the Congress Party, was mired in corruption scandals. Lower growth, coupled with a high inflation rate, made life hell for the poor who suffered inordinately because they could barely afford to buy enough food to keep body and soul together.

Along with corruption, red tape and populism hobbled the economy during the last ten years. Unsurprisingly, India’s overwhelmingly young voters booted out the Nehru clan, India’s de facto royal family, out of power.

Indian voters have great hopes from incumbent Prime Minister Narendra Modi, who entered office… Read more

History Provides Lessons for Jerusalem’s Future
Jerusalem

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In solving the Jerusalem issue, history presents obstacles and opportunities.

On April 15, the Israeli Supreme Court affirmed the application of the Absentee Property Law in Occupied East Jerusalem, therefore, allowing the unlawful confiscation of property and assets in the area from their Palestinian owners residing in the West Bank or Gaza Strip.

The confirmation of this law, issued in 1950 and used as a legal tool for the perpetuation of what Palestinians refer to as the Nakba (“catastrophe,” the forced displacement of Palestinians that led to the establishment of Israel), represents only a fraction of the struggle that Arab populations face in the tourist-friendly city of Jerusalem, where at the same time basic human rights are violated on a daily basis.

For this population, the right to housing, education, health, employment or a unified family is considered a privilege. Such violations, enforced by Israeli rule or allowed by turning a blind eye to violations committed by Israeli citizens, aim to uproot the Arab population from… Read more

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.

Photo Credit: Aphotostory / Shutterstock.com


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