Quick and Deep Thoughts on China's Stock Market

Richard Perry, founder of Perry Capital LLC, shared some thoughts with The Wall Street Journal about China's recent stock market decline and the government's extraordinary efforts to reverse it:

“I think it’s a game, the stock market, personally. They’ve basically closed Macau, and this has become the place to gamble.”

The article doesn't explicitly say so, but it appears Perry did not intend his comment to be a compliment.

Later in the article, another viewpoint is shared:

Eric Mindich, a former Goldman Sachs Group Inc. partner who now runs hedge fund Eton Park Capital Management L.P., said the Chinese authorities had “plenty of ammunition” to keep the good times rolling.

Some people wouldn't necessarily disagree with Mindich, with the caveat that keeping the good times rolling now could mean a bigger price to play later.

These two excerpts succinctly capture the spirit of much of the recent commentary I have seen on China's stock market, or whatever you want to call it now. Big questions about what this all means for China's future remain. In a longer piece, Orville Schell, who also makes use of the gambling analogy, offers an historical perspective on the scope of the uncertainty, which extends beyond China's stock market:

Although we can see a few shadowy outlines of answers emerging as China’s reform odyssey continues, we still do not really know exactly where [President] Xi intends to take the nation. To look into his “Chinese dream” is to see an aspiration for a country that is wealthier, more powerful and better respected. If you look at Xi’s domestic policies it is possible to see an ominously Mao-tinged autocrat whose answer to most problems seems to be more discipline, controls and toughness. But there is little else. And so, because China will almost certainly remain caught between transitions for some time to come, the resolution of crises such as stock market crashes will remain an uncertain and parlous business. The Maoist toolbox into which Xi now seems to reach with increasing frequency when problems occur provides him with few suitable tools for handling many of the complexities of 21st-century economic markets.

A Church Higher than Movies in "Godless Communist" China

Last month a friend's acquaintance referred to Chinese people as "Godless Communists" in a privately shared comment about Yiwu, "the town in China that makes the world's Christmas decorations". I replied:

It's hard to call China's system these days "communist", whatever the name of the controlling political party. On that note, "The total number of Christians in China is approaching the number of Communist Party members". Yiwu also happens to be in a province with an especially large number of churches, even after a number were recently demolished.

The comment also brought to mind a large church I had recently seen in Zhangzhou, Fujian province.

It is not Zhangzhou's only church and just one of many I have seen across China, including a church in nearby Quanzhou. However, one aspect of this church was rather unusual. A commercial movie theater operated underneath it.

Although some may consider this a great mix of religion and capitalism, the story behind churches and movies theaters in China is complex. While numerous active churches (usually without movie theaters underneath them) openly exist, the Chinese government tightly regulates religion, as suggested by the demolished churches near Yiwu. And while China's many movie theaters (usually without churches above them) care about profits and "a market-based Chinese film industry has started to emerge from the shadows of the older, centralized and state-funded model", the Chinese "government controls which films are made and has a hand in every aspect of the film business, from production to exhibition".

In this sense, the unconventional church & movie theater building in Zhangzhou is symbolic of both how "Godless Communists" isn't often a useful phrase for talking about today's China and how it is challenging to come up with a similarly concise way to accurately describe China other than, of course, as "Chinese".

Eggs and Gasoline: Comparing How Far the Average Income Goes in 1938's U.S. to Today's China

I first came across this "1938 Cost of Living" image in a shared tweet:

Any mentions I have seen assume the numbers in the image are U.S. specific, and I will do the same. I don't know the original source for the image, but the earliest mention I can find is by a Reddit user in a post which inspired many others.

The numbers are thought-provoking in how they compare to today's and what they would now be if everything had increased at the same rate. For example, a top comment on the Reddit post provides a "2014 Version" with costs updated using a simple inflation calculation:

New House: $64,939.43
Average Income: $28,823.11
New Car: $14,319.98
Average Rent: $449.58
Tuition to Harvard: $6,993.48
Movie Ticket: $4.16
Gas: $1.67
U.S. Postal Stamp: $0.50
Sugar: $9.82
Vit D Milk: $8.33
Coffee: $6.49
Bacon: $5.33
Eggs: $3.00

As Charles Mudede in Slog points out, the actual prices of some of those items today are much higher:

Tuition at Harvard is now $38,891, a 2014 Prius is about $25,000, the median price for a single-family home is around $200,000, and per capita income is just below $30,000...

Which in turns leads to points that Americans don't have as much purchasing power as they once did.

When I first saw the numbers, though, my thoughts went in a slightly different direction. The average American income of $1731 per year jumped out at me. It didn't seem very different from figures I remembered seeing for current average incomes in China. In The New York Times, Edward Wong shared some relevant numbers while reporting on income gaps in China:

Average annual income for a family in 2012 was 13,000 renminbi, or about $2,100. When broken down by geography, the survey results showed that the average amount in Shanghai, a huge coastal city, was just over 29,000 renminbi, or $4,700, while the average in Gansu Province, far from the coast in northwest China, was 11,400 renminbi, or just under $2,000. Average family income in urban areas was about $2,600, while it was $1,600 in rural areas.

Yet while many people in China make the same or even less than the average American in 1938, even without any adjustment for inflation, they can't get anything near those low 1938 prices for many of the items. In fact, for some items they could be paying more than what people in the U.S. are paying today.

For some examples, in response to figures indicating that with a dollar's worth of currency people in China could buy more than people in the U.S., several years ago Patrick Chovanec shared/translated/converted data informally collected by a Chinese financial publication to compare prices for the same goods in Hangzhou, a city not far from Shanghai, and Boston:

The more-expensive-in-Hangzhou goods, such as eggs and gasoline, are highlighted in red. And there are many other items to look at, such as iPhones (more expensive in China) and a popular economic indicator — Big Macs (more expensive in the U.S.). Using examples which may especially resonate if you have lived in both China and the U.S., Chovanec explains there is of course much more to consider, including costs of services, than the above chart when comparing people's purchasing power in China and the U.S. But as the chart suggests, it is not hard to find goods which cost more in China, and you cant make tea eggs or stir-fried egg and tomato, both common in China, without . . . eggs.

All of this is simply to say that when wondering how to interpret the latest news of China's economic growth, consider that many in China are living with a 1938 U.S. salary or less and spending it in a 2014 China.