This posting first appeared in Journalism, Journalists and the World.
Despite all the complaints about how poorly “the media” covered the Wall Street shenanigans that led to the 2008 Great Recession, people still turn to the unfettered and independent media outlets for news about stocks, bonds and the general state of the economy. In fact, the whole system of savings and investment would not work without a free press.
The media — and this includes knowledgable bloggers — provide the public with loads of information about what is going on in the marketplace. They look at government regulations, company news and the overall status of the market.
One of the reasons there is global support for the U.S. stock markets is because there is such a strong tradition of free and unfettered media. (And perhaps, part of the trauma of the 2008 collapse was because how poorly the market was covered at the time.)
In fact, one of the most important part of any successful stock market is a free press that is allowed to dig into company records and government actions. Look at London, Paris, Tokyo and even Hong Kong.
So is it any wonder there are uprisings and complaints about how things are going in the Chinese stock markets?
China Digital Times summarized a series of articles of how people across China are complaining about their losses in Chinese investment instruments.
According to the [Wall Street] Journal, some 1.6 million investors lost a total of at least $24.3 billion to collapsing wealth-management products over the past year. Many say they invested because of the perceived endorsement of government officials and state media, and are now demanding reimbursement from authorities.
Rather than move to make sure people got the best and most accurate information about where and how to invest their money, the Chinese government, instead, has decided to restrict even more information.
A series of leaked media directives published by CDT further illustrates efforts to manage discontent. Trying to steer a course between inciting panic and stoking further exuberance in June, the State Administration of Press, Publication, Film, Radio and Television told broadcasters not to “join the chorus of the bull or bear market. Rationally lead market expectations to prevent inappropriate reports from causing the market to spike or crash. […] Do not conduct in-depth analysis, and do not speculate on or assess the direction of the market. Do not exaggerate panic or sadness. Do not use emotionally charged words such as ‘slump,’ ‘spike,’ or ‘collapse.’”
Additional directives instruct editors to focus on “illustrative examples of steady growth,” while downplaying or holding back on anything negative about the property and stock markets.
Wall Street Journal reporter Laurie Burkitt retweeted one of the best reactions to the Chinese government actions:
In China, “the markets are like K-Y Jelly. They can play a decisive role, but they aren’t the main actor.” – Jim McGregor @AmCham_China
— Laurie Burkitt (@lburkitt) April 15, 2016
And yet, the government continues to see it self as the main actor.
Why does this matter to journalists or even the people in the United States?
A great misunderstanding of how the Chinese markets work led to a global run on markets. And yet, only after the Western markets started falling because of what was happening in China, did people start figuring out the fall was an overreaction.
There is not enough foreign investment in the Chinese market for it to be a major problem. The London consultancy Capital Economics has said foreigners own just 2% of shares. — BBC 1/7/16
The smoke and mirrors situation in China built up by the ruling elite created a situation where otherwise strong Western investment instruments collapsed in just a matter of days. To be true, the collapse of the Chinese stock markets did indicate the Chinese economy was slowing. But again, had there been better reporting in China — that is had the government NOT restricted what reporters can cover — then the news about the slowing Chinese economy would not have come as such a shock.
The anti-free press fixation of the Chinese government is not just morally wrong, but it clearly also has a direct impact on U.S. investors, including a lot of retirement funds.
By the way, this has all happened before.
Back in the early 1990’s — when I lived in Shanghai — the government opened stock markets in Shanghai and Shenzhen. The party and government leaders encouraged people to invest. The people, figuring that the government has always taken care of them in the past will guarantee they will be taken care of in the future.
When the market collapsed in early 1992, millions of people lost their life savings. Men and women in their 60s discovered they had to now work many more years and save a lot more of their earnings to prevent starvation in their old age.
At that time the government did not step in to make good the losses. Deng Xiaoping was effectively in charge and forbade any bailouts. (Except for key companies, of course.) He made it clear the people will have to learn about the ups and downs of a marketplace economy with Chinese characteristics. He even allowed for and encourages small private companies to be set up.
The new leadership, however, has seem hell-bent to restore the all-pervasive nature of the Communist Party in Chinese society. They have apparently become nervous about the growing middle class. Seems once people get a taste of economic freedom, they tend to want political and social freedom as well. And that is not allowed.
So the government stepped up it campaign to crush freedom of speech and expression — including reminding the media their job is to represent the party — and stepped up its campaign of the government being mother and father.
The Chinese leadership claims they are concerned with preserving stability and avoiding social unrest. Yet the keep taking steps that lead to more social unrest.
By restricting the media to being only mouthpieces of the government, people will turn to rumors and whispering campaigns for information. And, as anyone who has played the “telephone game” will know, what goes in at the start is not necessarily what comes out the other end.