To be crystal clear, I am not saying the CSI300 needs to produce 15% CAGR like the S&P500 - the latter is representative of
& underinvestment in critical industries (Boeing, GE to name a few).
That being said, the stock markets should produce returns similar to GDP-returns (if income & return on capital grows at the same rate, then inequality does not get out of hand the way Piketty describes it) in a purely domestic sense, and should generate higher than GDP returns to the extent China continues to capture higher parts of the smile-curve (services, patents/IP, standard setting etc) as it outsources low-end manufacturing to ASEAN.
While you are absolutely correct that the stock market/capital market at large
was not important in China's growth trajectory til today, it absolutely
will be important going forward.
Stock market and gdp are two entirely different things that don't necessarily need to track each other; the latter, despite the existence of a big element of rent seeking in price, do still somewhat closely capture actual goods and services made, while the former is a sleight of hand mathematical formula subject to beautiful magical thinking that barely reflects reality on the ground or simply a play for money robbery.
Case in point, Yum China stocks, your favorite, popped a bit. Their last quarter actual sales grew closer to 20% y/y, surprise yippeekayay, consumers are suffering, low confidence, bla bla bla all that stinking mound of bs notwithstanding. Add in a few more share buybacks and dangle a plan to expand, there goes the higher valuation all of a sudden just like that, like day and night, with nothing made or created on the ground, not yet, which may or may not materialize eventually. People were still eating back in q4 ffs, but stock valuation was down, reflecting nothing related to actual spending on the ground. Just a whim and attach a feel good/feel bad number to it.
Absolutely important going forward? We'll have to wait and see. At this point, all the economics and finance tenets should be taken with a truckload of salts.
Everything, question everything, because we see more and more each year the crises are getting bigger in size and unrecognizable in patterns and trajectories and getting stranger, at least by the edict of those exclusive sounding fancy theories and laws. If someone show me a very elaborately smart equation telling me how things work, I'd certainly look around if anybody else getting fucked. If everybody seems to be doing fine then, it's probably me who is the one getting screwed raw, big time.
Hundred years down the road, future generations would be dumbfounded to know how retarded we are, just like we do to horseshits of centuries before.
The problem today is that people have a lot of excess cash sitting in a deposit account or in a GIC earning 2% a year, and have nowhere to put it. This is not an efficient capital allocation strategy. The worst part of the current situation is that the bank then turns around and gives that to a LGFV which then invests in a 1% return road to nowhere. Some of these roads are effective, but lots of them are also built just for local officials to skim the grease.
Who is to say there's only money and profit motives, and those motives only are correct? efficient capital allocation strategy? sounds like so fancy and exclusive.
Hey at least China don't do wage suppression, financial suppression on the other hand is a different story.
Corruption. That's now a tired cliche, just throwing out the BBC-esque horseshits. Corruption is nowhere near the scale of Hu era. You do know there's a government website that shows nation wide Chinese civil and criminal court records where you can find corruption cases proceedings and outcomes, right?
Meanwhile, private companies are resorting to using loans from loan sharks or expensive leasing companies (There is a Taiwanese company called Chailease that makes 10-15% returns on leases they give out) to buy equipment and expand capacity.
This should not be happening in an efficient capital market and is not good for the country!
You should think of the capital market as a matching algorithm that allows willing providers of capital and takers of capital to figure out the right price for capital (interest, or rate of return).
This is precisely why it is important to have a
direct-financing mechanism as opposed to the current
indirect-financing mechanism going forward. Reducing the role of the banking system also allows people to directly raise money and improves diversification of the financial system + reduces leverage for the system at large.
Put in simpler terms, financial repression has helped historically (Stiglitz effect), but it has been causing more harm (Mackinnon effect) than good in the past 7-10 years, and will cause even more harm than good in the future:
Lol, efficient capital market in 2024? my sides !!!! Just another beautiful dogma that fucked up the unwashed masses raw. Maybe an algorithmic gluttonous capital market in reality shall we say?
A little bit of shadow banking is good, but without reserve status, too much of it is just not gonna happen, just simple common sense. Not head in the clouds "efficient capital market" lol.
Look, one thing Chinese leaders, or at least those who are working for them, are good at is spotting the troubles early, and seeing and using the west as just a tool just like any other, notwithstanding their usual tropes about ideology, theories and values and all. So have you ever wondered they may have come up with their own set of tools from their own immense amounts of practice and hand-on experience, which are way better suited to China situation then some dead white men's fancy so faraway theory which are, mind you, very thin on evidence, at least in China's unique settings? Direct transplants are sure fire fastest ways to literal f..ups.
It's fun. You're a product of your surrounding, so, not much hope you'll see past those fancy theoretical framework, and you'll keep arguing on how good and true they are and how much bad shape China is in and not doing things right, etc, bet dollars to buttons.
It's China's practical finance and economics with Chinese characteristics with tons of supporting evidence that rest of the world would need to learn later on, if not already for some.
