China understands fundamental concepts like “the market” and “shareholders” far differently than the rest of the world.
By Kerry Brown, January 20, 2016
While Chinese leaders often use language the outside world understands in one way, in fact their own internal comprehension and meanings are utterly different. One of the interesting side stories of the Chinese stock exchange saga over the early part of January is that it reinforces this idea. There are, in fact, huge parallel conversations going on between China and much of the outside world. The confusing thing is that both are using the same terms and vocabulary, while meaning wholly different things.
Three elements of the Chinese stock exchange illustrate this problem. The first is the Chinese leadership discourse about markets, the second is the role of shareholders, and the third the role of listed companies. These are pretty fundamental concepts and ingredients for any stock market anywhere in the world. And for each one, Chinese authorities clearly define them in a very unique way.
Markets are key. In 2013, there was widespread surprise, but also admiration, for the way in which the Communist Party Plenum that year, for the first time ever, said markets were essential, not just preferential, for reform. That seemed to bring them close to the most zealous free marketeer in the west. But it was, of course, just a statement on paper. When the opportunity came to really let the market sort things out, last July and now in January in the Shanghai and Shenzhen markets, the government balked, and then intervened. Perfecting the market is still an aspiration in China. We have a ways to go before it becomes close to a reality.