Advice After Stock Market Drop: Take Some Deep Breaths, and Don’t Do a Thing - New York Times

August 25, 2015 at 12:10pm

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Advice After Stock Market Drop: Take Some Deep Breaths, and Don’t Do a Thing
By RON LIEBERAUG. 21, 2015



A trader at the New York Stock Exchange on Friday. The Dow Jones industrial average dropped 3.1 percent on the day and the Standard & Poor’s 500-stock index fell below the 2,000 mark. Credit Brendan Mcdermid/Reuters

The impulse when the stock market falls hard for a few days in a row is to do something. Anything. Our life savings are often on the line, after all.

But that’s just the thing: Stocks are most useful for long-term goals. So unless those goals have changed in the last few days, it probably doesn’t make much sense to overhaul an investment strategy based on a blip of market activity.

So pour yourself a drink, or sit down with a pint of ice cream, and consider the following six things.

First, you are not the stock market. Chances are, your portfolio is a diverse mix of investments. Many people save in target-date mutual funds that do the work of diversification for them. Vanguard’s 2035 fund was down 4.6 percent last week, better than the 5.77 percent decline in the Standard & Poor’s 500-stock index from where it closed a week earlier.



Mike Pistillo, a specialist trader, at his post on the floor of the New York Stock Exchange on Friday.Economic Trends: This Week’s Market Sell-Off May Not Be Such a Bad ThingAUG. 21, 2015

Second, if you have been investing in stocks in the last six years, you most likely are a big winner. It’s generally a bad idea to look at your investment statements too often, but take a quick peek.

That outsize gain you see is one reason you are in stocks in the first place. Plenty of research shows that if you miss just a few days of the market’s biggest gains, your long-term portfolio will suffer badly. If you decide to put a bunch of your money in cash this week, how will you know when to get back in the market? You’ll probably be looking for a sign, and that sign will be the very rebound days that you will have missed out on.

Still uneasy? Consider a third point: At some time in the past, when you were not scared, you made a decision to construct your portfolio a certain way. You knew that stocks involved risk and that the returns they have traditionally delivered, above and beyond what cash and bonds do, was the reward for your persistence.

Nothing about the events of recent days suggests that the fundamentals of capitalism have changed. So neither should your confidence in very long-term ownership of the pieces of the for-profit enterprises that benefit from your fortitude.

Nobody knows for sure whether we’re in for a decline in the stock market of 25 percent or more. But if such a decline does happen and you are a regular investor, you’ll be buying more when prices are lower.


How worried are you about the recent declines in global markets? Do you plan to change your investments?
Share your thoughts »
Which brings us to point No. 4: Long-term investors have time to recover. I know too many 70-year-olds who sold all of their stocks in 2009 and are healthy enough to live to 100. They’d be going on a lot more vacations now and be worrying less about long-term care if they had held firm.


Worried about a 529 college savings plan for a 12-year-old? Hopefully, you weren’t 100 percent in stocks with six years to go before needing money for tuition. Still, you have at least nine years for a portion of that portfolio to recover from any sustained downturn. If that 12-year-old is the oldest of at least two children, you could use cash to pay some tuition bills for the eldest and let some of the account ride even longer for the next child.


Let’s say you still have trouble sleeping. Then you may be the sort of person who needs to consider a fifth point: Some people cannot handle the stress of investing in stocks. But try to give this more time, and consider the alternatives. There are few investments that can deliver the kinds of returns that stocks can without their own accompanying anxiety.

Another alternative is to save a lot more in safer investments like cash or certain bonds. Most people don’t have enough income to do that easily, so settling for lower returns will mean a combination of working longer and living modestly, forever. For some people, that is a fine trade-off.

One final point for new investors (and their parents and grandparents, who ought to be counseling them right about now): This is what markets do. There is absolutely nothing abnormal about what is going on here.

Most of us have to save somewhere, and history suggests that stocks are the most accessible route to get the returns you’ll need to retire someday. It would take decades of systemic economic erosion to prove otherwise, and a few days of market declines do not suggest that anything like that is upon us.

The falling FTSE: How worried should we be ? - BBC News

http://www.bbc.com/news/business-34039767

The falling FTSE: How worried should we be?
By Brian Milligan
Personal Finance reporter



The index of the UK's biggest 100 companies, the FTSE 100, has now fallen by 15% since its all-time high on 27 April 2015.
That makes it more serious than a technical correction, normally thought of as a fall of 10%. However, it is not yet a bear market, which is the term used when the index drops 20% or more.
The index of the next biggest companies - the FTSE 250 - is down by 10% since its peak on 3 June.
While the current rout of prices was initially confined to commodity and mining stocks, hit by the slowdown in China, the slump now looks much more widespread.
"We are in the midst of a full-blown growth scare, with China at the epicentre," said a note from analysts at JP Morgan.
So how worried should we be by such events - or is there even a silver lining to this crisis?

How big is the fall?

Monday's fall on the FTSE 100, of between 2% and 3% at the time of writing, is not that big in historical terms.
On 19 October 1987, otherwise known as Black Monday, the index fell by 10.84%. The following day, it fell by a further 12.22%.
On 28 October 1929, at the start of the Wall Street crash, the Dow Jones Industrial Average fell by 12% - and a further 11% the day after.
What is more significant, however, is not the individual one-day falls, but the longer-term declines.
In 1987, for example, Black Monday was followed by a true bear market. By the end of the month, the FTSE 100 had fallen by more than 26%.

During the financial crisis of 2007-08, the FTSE 100 peaked at 6,724 on 12 October 2007, reaching a trough of 3,512 on 3 March 2009 - in all, a drop of 47%.


Bank of England

Interest rates
One immediate impact of the current market turbulence is likely to be a further delay in an interest rate rise.
The Bank of England's Monetary Policy Committee (MPC) primarily looks at inflation expectations when considering any change in rates - but it also looks at wider market confidence as well.
Despite recent suggestions by the governor of the Bank of England that a rise might be expected as soon as the end of 2015, analysts now expect that rise to come considerably later.
In other words, those on variable-rate mortgages can now breathe more easily, and may not have to hurry to switch to a fixed-rate deal.
"I think it's good news for mortgage holders, as it must put back the date of the next rate rise," said mortgage expert Ray Boulger of brokers John Charcol.
On the other hand, the news will inevitably not be so good for savers, who will have to stomach record low savings rates for a while longer.

Investors

How much you should worry about the stock market fall probably depends on your age.
Those in their 50s, approaching retirement, will have much more to be concerned about than younger people. In particular, anyone about to take out a pension, or indeed thinking of cashing in their pension, may have to think again. (See pensions below).
But younger people with pensions, or those investing in the stock market directly, may have little to fear.
Admittedly, some analysts worry that the markets have further to fall.
"Against this backdrop, it would take an investor with nerves of steel to contemplate dipping back into the market at this point," said Michael Hewson, analyst at CMC Markets.
But other experts say that young investors will have plenty of time to make their money back - and indeed could make a lot of money by investing now.
"For younger investors, falls like this are great," says Mark Dampier, investment analyst at Hargreaves Lansdown.
"You're buying the market way cheaper. You should be adding."

retirement fund

Pensions

But you don't need to hold shares directly to be hit by the current slump.
If you are paying into a pension, the chances are that about 70% of it is invested in shares or share-based funds.
While you will now be feeling considerably poorer, it only really matters if you are about to cash in your pension, buy an annuity or set up a drawdown policy.
In that case, your capital will have shrunk, and now may not be the best time to buy a pension.
Mark Dampier is particularly concerned about those who already have a drawdown scheme in place.
Pensioners in drawdown leave their capital invested and "draw down" an income from it. But falling share prices can erode the capital quickly.
"If you are in a drawdown plan, this is definitely the time to check you are not drawing down too much from your capital," he told the BBC.
Those who do are in danger of running out of money before they die.
'Nasty'
On the other hand, many pension pots will not have fallen in value by as much as the FTSE 100.
Smaller companies - particularly those not in mining or commodities - have fared better.
And while many funds typically invest 70% in shares, 30% is often invested in bonds - which may even have gone up in value over the last few months.
Those whose pensions are in so-called lifestyle funds will anyway have seen some of their capital gradually transferred into bonds, as they get nearer retirement age.
The outstanding question, as ever, is whether the slump has further to go, and how long it may take markets to recover.
"This is a nasty correction," said Mark Dampier. "And nobody knows whether there's more to come. That's what makes it scary. But unless this is the death of capitalism, stock markets do recover."

Here’s Why China Devalued Its Currency - Fortune

August 24, 2015 at 12:43am

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Here’s Why China Devalued Its Currency
Scott Cendrowski / Fortune Aug. 11, 2015  

China’s central bank devalued the country’s currency, the renminbi, by about 2% against the U.S. dollar on Tuesday. It was the biggest one-day move since the renminbi, or yuan, officially de-pegged from the U.S. dollar in 2005. The yuan maintains a close relationship with the dollar and trades 2% in each direction from a midpoint selected by China. Today, that midpoint went from 6.11 yuan per U.S. dollar to 6.22.

Trump and others may say China is purposely devaluing its currency to help exports. After all, its economy is struggling to hit the government 7% growth target.

But is that what’s really going on?

For the most part, China has recently actually wanted its currency to steadily rise, for political reasons and to keep capital from flowing out of China. China’s domestic and international goals align with a stronger yuan. That helps explain why presidential candidates like Trump haven’t been spouting off about China’s currency management as much of late.

The answer to why China’s government devalued its currency Tuesday probably has more to do with the dynamics of global currency markets than a sudden urge to help Chinese exporters make their goods cheaper on the world market.

First, the yuan is strongly related to the dollar because China still manages the exchange rate within a range against the dollar. When the U.S. dollar rises rapidly against world currencies, like it has in the past year to pull almost even with the euro, the yuan also rises against China’s trading partners’ currencies.

China has wanted the yuan to steadily rise against trade-weighted partners for a while. To keep that appreciation gradual, as the dollar rockets upwards, it may have to devalue a little, says Jonathan Anderson, at Emerging Advisors Group, one of the clearest observers of China’s markets. “But this is not the same as a “competitive devaluation” of the renminbi —and there’s nothing like that on the cards,” he wrote today.

“All China is doing today is managing the pace of trade-weighted renminbi appreciation,” Anderson continued. “Any attempt to gain truly meaningful competitiveness vis-à-vis trading partners would require, say, a 20% to 40% devaluation against the dollar.”

If China had devalued the yuan by, say, 20%, it would clearly be an effort to boost exports for its advantage. A 2% devaluation is different: it simply keeps the yuan a little more in line with trading partners’ currencies, which have lost value relative to the U.S. dollar. (For more on the U.S. dollar’s rise, read this recent Fortune piece.)

As mentioned, China actually wants a stronger currency. As recently as April, it was actively trying to strengthen the yuan, the Wall Street Journal reported. The country’s central bank purchased the yuan in the currency markets and sold U.S. dollar holdings, a move aimed at stemming capital outflows from China as the yuan was falling.

As Chen Long of Gavekal Dragonomics in Hong Kong recently explained, China has twin (and sometimes competing) goals for exchange rates. On the domestic front, it wants to help exporters with a cheaper currency, but it also wants to maintain a strong currency to prevent capital outflows that may weaken the country’s economy further. On the international side, China wants to avoid a trade war with the U.S., which it would have if it severely weakened the currency. It also wants to boost international use of the yuan for political purposes, as China asserts itself more strongly around the world. The country’s recent campaign to have the yuan join the mostly meaningless IMF reserve currency is one example of China desiring a strong currency. In the end, these multiple goals again promote a slightly stronger currency.

China’s central bank said Tuesday’s yuan depreciation was a way to make the country’s financial system more market-oriented. The bank said market spot prices would now determine the daily position, implying that the central bank would step in less to influence it. Over the past few months the yuan-dollar spot price had been lower than the exchange rate, and it became clear the central bank was supporting a stronger yuan.

There are reasons the government doesn’t deserve the benefit of the doubt when it says it’s in the business of market-based approaches. President Xi Jinping’s administration said the same thing before pledging around $800 billion in government money last month to prop up the falling stock market. China’s words and actions don’t always match.

But there are also reasons that today’s devaluation shouldn’t only be viewed through the prism of trade. First, other exporters in Asia, including South Korea and Taiwan, are hurting because of weak demand abroad. Sluggish economies in Europe and the U.S. influence China’s exports. That’s is not all solved by currency devaluations. Second, China can use other mechanisms to boost its economy. Internet rates and bank reserve requirements can still be cut considerably, and analysts expect that to happen. More government spending is already in the works: China’s banks will issue 1 trillion yuan worth of bonds for infrastructure spending, according to recent reports.

For now, it’s too early to say China is starting a currency war, even if that may be the West’s first inclination.

Yuri Milner: Why I Funded the Largest Search for Alien Intelligence Ever

July 30, 2015 at 8:31pm

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Yuri Milner: Why I Funded the Largest Search for Alien Intelligence Ever
Matt Vella @mattvella July 20, 2015   

And why it’s worth $100 million over the next decade for him to help do so


On July 20, a consortium of scientists funded by billionaire investor Yuri Milner announced a $100 million project to answer one of the biggest questions in the universe: Is there intelligent life beyond our solar system? Milner, 53, a former scientist who was CEO of Russia’s largest Internet portal Mail.ru before making prescient investments in Facebook, Twitter and Alibaba, has focused his philanthropic efforts on science. The endowment—dubbed Breakthrough Listen—will fund telescope time in North America and Australia as well as data processing to look for radio signals in distant solar systems. Milner spoke to TIME about the announcements; what follows is a lightly edited transcript.

Q: You founded the Breakthrough Prize three years ago to recognize scientists in much the way the Oscars recognize Hollywood. The show also draws famous celebrity presenters like Benedict Cumberbatch. Why do this? Where does your interest in science come from?
A: In my previous life I was a physicist, maybe that explains my interest in science. I was named Yuri after Yuri Gagarin, the first human to journey into outer space. So I kind of carry this name, and I think, a mission to support science.

We don’t celebrate intellectual achievement. We celebrate athletic achievement. We celebrate artistic achievement. If you were to look at the 200 most famous people in the world, Stephen Hawking wouldn’t make the list—or maybe he’d be number 199 or something. With [Breakthrough], we’re making some progress on that. We don’t pay celebrities to come; they come because they want to. When we started it was the only black tie event in Silicon Valley. This year for the first time, it’ll be broadcast on a major network—Fox—and we’ll be televising it live.

Why focus on the question of life in the universe now?
We’re announcing on July 20, the anniversary of the Apollo Moon landings. I think interest in space is rising again after a long period of dormancy. Look at the excitement over Pluto, over possibly reaching Mars. This project is easy to explain. It’s high impact, low probability which is scientifically legitimate. And everyone in his life has thought about this question.

What are you looking for exactly?
An artificial signal not explainable by science.



SETI [search for extraterrestrial intelligence] has a long history. What’s changed?
In the 1960s, Frank Drake did pioneering SETI work and it was partially funded through the 1980s. But then the idea sort of faded away—except for the question of course. Today several things have changed that will allow us in one day to pull down as much data as we’re currently doing in a year.

We now know for a fact that there are candidates in the galaxy, a few billion. Telescope time used to be harder to get, but now there is an opportunity for private endeavors to buy telescope time. And finally Moore’s Law: we can design a backend infrastructure capable of processing huge amounts of data much faster than ever before. We want to marry the best of Silicon Valley’s capabilities with the best science can offer.

There’s a lot of space, to put it mildly. Even if we get a better look, what’s to say somebody is looking back at us?
There’s been a lot of very serious scientific work done on this and a lot of very interesting philosophical work. The thinking is if there is a civilization even a little more advance than us, they might be able to tell there is oxygen in our atmosphere and that we’re worth looking at. If they have something even as big as Arecibo [a radio telescope in Puerto Rico], and they point it at us they can communicate.

And what about the societal consequences of finding an answer either way?
Either answer is kind of cool and frightening. We’re alone is kind of cool and frightening. And we’re not alone is kind of cool and frightening. Although it would be a fundamental discovery, life will not change a lot. He will got work. I will make an investment. You will write something.

What do you think personally?
The universe is not teeming with life, but we’re probably not alone. If we were alone it would be such a waste of real estate. But I don’t want to be the judge, I just want to help find an answer.



You say this is an “open” project. What does that mean?
We’re making all the data open and available to scientists and amateurs alike. A lot of projects claim to be open but really aren’t. We will be totally open. There will be no need to apply and the data won’t be delivered in a manner so complex as to make it unintelligible. We’re also using the SETI infrastructure—a network of 9 million personal computers that forms one of the largest super computers in the world. Now they’ll have a lot more data to chew on. The more people participate, the better. I’m sure there will be plenty of false positives, but it’s worth it.

The funding will last for a decade. What if we haven’t found anything by then?
I’ll fund it for another 10 years. This thing can go on forever. It’s our responsibility as human beings to keep looking for a signal.

Worries about a full-blown crash could be a bit premature - BBC News

August 22, 2015 at 4:02pm

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Worries about a full-blown crash could be a bit premature
By Karishma Vaswani
Asia Business Correspondent
21 August 2015

Are concerns over a new crash justified?
Emerging markets' currencies tumbling to near record lows. Millions of dollars worth of foreign funds pulled out of stock markets in the region. And some investors around the world fearing a major financial meltdown.
It certainly feels like we've been here before.
Many in Asia's financial circles are calling this a re-run of the 1997-1998 Asian financial crisis.
I remember that crisis well. I was a university student interning for the BBC in the summer of 1997 in Jakarta, and I witnessed the full brunt of the Asian financial crisis on some of the most vulnerable in society.
The Indonesian rupiah lost more than 80% of its value - going from 2,500 rupiah against the US dollar to 16,000 at its lowest point. The stock market wasn't spared - it fell by more than 50% by December 1997 and businessmen lost tens of thousands of dollars in a single trading session.
There was panic everywhere. People thought banks had run out of money (and some had), so they formed long lines outside branches, trying to withdraw all their savings. Factories shut down, and workers lost their jobs. The price of basic foods like cooking oil and baby milk soared.
An economist friend of mine in Indonesia once told me that you know you're dealing with a crisis when the "ibu-ibus" (Indonesian for housewives) are affected. Housewives in South East Asia's biggest economy saw the price of imported formula milk for their babies triple, leading to protests outside supermarkets across the country. One Newsweek article described how cooking oil was rationed and sold at police stations. "If they didn't, people would kill each other," the article said.
The meltdown in Asia was set off when Thailand floated the baht in 1997, setting off a domino effect in the region where one by one, currencies fell against the US dollar.
Today, many are worried that China's devaluation last week could set off a similar trend.
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The BBC's economics editor Robert Peston examines the prospects for the world's economy.
Bad news by the day
Some analysts are even warning the impact will be far bigger than 1997 because China's economy is far more important and integrated into the world economy than Thailand ever was.

China's devaluation has already led to the tumbling of currencies around the region.
And it seems like every day we get bad news about the world's second largest economy.
On Friday, data showed that China's factory activity shrank at its fastest pace in more than six years.
All of this adding to increased concerns that China's economy is slowing down - which it is - and how much of an impact the slowdown will have on the rest of the world.

Even the US Fed has raised concerns about the Chinese economy's outlook in its latest minutes.
The thinking goes that if China keeps slowing down, then it won't buy as much "stuff" from Asia as it has in the past, and that will mean Asian economies that have grown thanks to the commodity boom and Chinese demand will slow down too. We're already seeing evidence of this across the region.
Since China and Asia together make up more than half of global growth, a slowdown here is bound to have an effect on the health of the overall world economy.
So if at this point you are starting to feel a little unsettled about the future, I wouldn't blame you.

But, when in doubt, reach for the hard facts and take a deep breath - and here's what Julian Evans-Pritchard, China Economist at Capital Economics, says:
"Sentiment [on China] is currently overly downbeat," he wrote on Friday. "The downside risks to short-run growth are now overstated.
"Credit growth has begun to accelerate on the back of recent policy easing, which should feed through into stronger activity, albeit with a lag. The fiscal stance is also set to loosen in coming months as local governments accelerate spending to hit annual budget targets. "
So if that's true - and credit growth in China is starting to pick up, those effects are typically often seen in the real economy within three to six months.

Emerging markets are also in a far stronger position than they were back in 1997-98. They have stronger current account balances, higher foreign exchange reserves and mostly floating as opposed to fixed exchange rates - which means they don't have to be defended from speculative attacks.

The other factor to consider is India's economy - it now claims higher growth than China's (although many analysts have questioned how those figures have been calculated) and its stock exchange - the Sensex - has seen record inflows in the last six months, attracting investors who have fled from the volatility in Chinese shares.

So it could provide an alternative engine for global growth, if the government's figures are to be believed. I'll be in Mumbai, India's financial capital next week, to see first-hand how much of that growth is actually being felt on the ground.
So that's all good news - and should have investors and policy-makers breathing a sigh of relief.
Daily stock market fluctuations in a highly connected and globalised world are to be expected, but they shouldn't necessarily be seen as the beginning of the end of the world.
What we should be paying more attention to, perhaps, is whether there are long lines outside of our banks and supermarkets. Now that's what you call a crisis.

Here’s What Could Happen Next in Greece - Fortune

July 9, 2015 at 12:35am

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Here’s What Could Happen Next in Greece
Geoffrey Smith / Fortune July 7, 2015   

No one cares enough to save Greece with their own money


All sides say they still want Greece to stay in the euro, and as long as that’s the case, then there’s always a chance that they will make the necessary compromises.

However, all sides are acting like they would rather Greece were out of it: Greece’s government has made impossible promises about keeping the euro without austerity. The Eurozone’s last offer was a deal that pretended Greece has a realistic future in the currency union without growth. The European Central Bank is pretending that Greece’s banks are solvent, but still refusing to lend them any more money to cover a massive run by depositors.

So where do things go from here?

1. How long can the current deadlock last?

The best guess is still July 20th. This is the day when Greece is due to repay the ECB €3.5 billion. It will miss that payment barring some kind of miracle. On that day, it becomes politically impossible for the ECB to continue making emergency short-term loans to Greek banks. If the ECB won’t take the Greek government bonds as collateral, their value will collapse, and the banks will become insolvent (for supervisory purposes, their current troubles are deemed to be ‘temporary’ liquidity difficulties).

No sensible investor would put new money into a bank in that situation, so you would have to use administrative measures to reduce the banks’ liabilities to a level where they are properly covered by assets. The only realistic ways to do that are to convert deposits into equity, or to “haircut” them. That can either be done by simply writing them down or by redenominating them in a new currency.

2. Is there no hope that the creditors will back off on the demand for austerity?

Actually, yes, there is. The creditors’ red line is to write off part of the money Greece owes them. But they can achieve the same effect by rescheduling the debt so that it’s paid off over a much longer time (say 50 years) and with a long grace period. That way, Athens wouldn’t have to run as tight a budget as is currently being demanded, giving the economy more room to grow. If the economy is growing and the debt level isn’t, then pretty much everybody would be satisfied with that.

But there are a lot of problems even with that. For one thing, Greece is already paying less, proportionately, on debt servicing than countries such as Italy and Belgium (whose coat-tails they would be riding on). For another, it would encourage radicals in other countries, bolstering the kind of tax-and-spend leftism that is anathema to Berlin and the European Commission. And most importantly, growth depends on more than writing debt off. The IMF, which suggested the above idea on debt re-profiling last week, despairs of the Greek government ever reforming enough to generate growth.

3. Will Germany relent?

German press coverage has started to swing against Chancellor Angela Merkel as the risk of breaking up the Eurozone rises (see above), but it’s happening too late to change a groundswell of public opinion bitterly opposed to lending Greece any more money. Merkel herself said that there are “only a few days left” to avoid the worst as she arrived for today’s summit. In that timeframe, she has more to lose politically by caving in to Greece than by refusing them. The most likely outcome is that she will try to spin a “Grexit” as a measure to strengthen the euro’s credibility. The Eurozone’s political elite would dearly like to believe that, but the evil Anglo-Saxon speculators who dominate global finance will take more convincing.

4. Can anyone else stop Greece being forced out?

It’s clear that governments from China to the U.S. are concerned by what could happen if Greece goes (President Barack Obama has called Merkel and France’s President Hollande in recent days to voice those concerns). There will be major market volatility (and China’s are quite volatile enough already), huge question marks over the future direction of the E.U., another slowdown in its economy (the world’s largest), and a failed state right on the front line of a migrant crisis that is a major humanitarian disaster.

Despite all this, no-one (not even Vladimir Putin or Nobel Prize-winning liberal economists) seems to care enough about the Greek state, in its current dysfunctional form, to save it with their own money.

5. Would Greece be better off without the euro?

Who better to ask than the Greeks themselves? A Bloomberg poll last week showed 81% of people wanting to keep the euro, and only 12% wanting a return to the drachma. That’s because a euro is a hard currency, with real spending power. Nobody knows what the value of a currency printed at will by Greek governments would be worth, but Greeks remember the last one well enough to have very serious doubts about it. For more on what a drachma would be worth – read this by Fortune’s Stephen Gandel.

6. So why did Greeks vote ‘no’ at the referendum?

Because the government’s message–that this was about austerity–drowned out the warnings from the rest of Europe that it was actually about keeping the euro. That suggests that Greeks are still suffering from acute cognitive dissonance, believing that they can keep the euro without the conditions that everyone else in the Eurozone says are necessary.

7. Will Greece cave at the last minute?

Maybe. The government has to pay pensions and public-sector wages again at the end of every month, and it will not be able to gather together the euros to do that after July 20th. So at some stage it has to admit who has ultimate control over the supply of euros. At that point, it could accept the creditors’ demands. But so many of Tsipras’ party would rebel that the country will need new elections and a new parliament to have any hope of implementing a new deal. On the bright side, once Tsipras and Syriza are out of power, the European might be more inclined to grant debt relief. Politics is a personal business, after all.

This article originally appeared on Fortune.com

China’s Currency Move Clouds Its Policy Goals - New York Times

August 15, 2015 at 6:37pm

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China’s Currency Move Clouds Its Policy Goals

By KEITH BRADSHERAUG. 11, 2015


HONG KONG — As President Xi Jinping of China prepares for a state visit to Washington next month to smooth over troubled relations, his government has just turned the spotlight back on a recurring issue: the value of his country’s currency.

The currency, the renminbi, is part of the fabric of the global economy, providing a way for China to further its diplomatic and investment goals. The renminbi is also an important tool for the leadership’s domestic agenda, namely supporting its economy.

China now faces the difficult dilemma of trying to balance its needs at home and abroad.

When China abruptly devalued its currency nearly 2 percent on Tuesday morning, authorities said market forces would play a bigger role in determining the value of the renminbi. After the renminbi fell further during trading on Tuesday, the central bank set the currency another 1.6 percent lower on Wednesday morning.


China's central bank set the official exchange rate for the renminbi at 6.33 per dollar on Wednesday, or 1.6 percent lower than the previous day.China Weakens Its Currency FurtherAUG. 11, 2015
Counting renminbi in Beijing last month. On Tuesday, China’s central bank set the value of its currency nearly 2 percent weaker against the dollar.China Devalues Its Currency as Worries Rise About Economic SlowdownAUG. 10, 2015
A fruit vendor in Beijing on Tuesday. China's central bank devalued the nation's currency.Economic Trends: Why Did China Devalue Its Currency? Two Big ReasonsAUG. 11, 2015
The United States and others have long called for Beijing to let the currency move more freely, rather than keeping it under such tight control. China’s restrictions on the renminbi have also been a concern of the International Monetary Fund, which is weighing whether to include the renminbi in an elite group of world currencies along with the dollar, the euro and the yen.

How China Is Trying to Stabilize Its Economy
China’s devaluation of the renminbi was the latest in a series of moves over the past two months to help boost the slowing Chinese economy.

But China has another, seemingly contradictory, motive. In devaluing its currency, China is giving priority to its domestic needs. As China’s economy slows, a weaker currency will help buoy the country’s exporters and create jobs at home.

Surging blue-collar wages in China coupled with recent declines in the currencies of rival exporters like South Korea and Taiwan have made it harder for Chinese companies to compete in labor-intensive industries like garment manufacturing and shoe production. Chinese exports fell 8 percent last month compared with a year ago.

“When the renminbi was appreciating, our customers, who are mainly from North America and Europe, had complained about our prices being too high,” said Anna Cho, sales manager of the Shanghai Kaiyuan Pump Industrial Company, a maker of water and sewage pumps. “They will be happy about this new development,” she said, referring to the currency devaluation.

The coming months will provide a test of whether the leadership is focused more on reforms or on the nation’s economy. While Beijing wants a weak currency, it does not want it to go too low.


Editorial: China’s Currency DilemmaAUG. 11, 2015
On Tuesday, traders bet heavily that the renminbi would continue to fall. If Beijing follows through on its pledge to let the market play a much bigger role, more declines will follow.

“If they really do it, it may be going down and down and down,” said Diana Choyleva, the chief economist at Lombard Street Research, a consulting firm in London.

Devaluing the renminbi weeks before President Xi’s visit to the United States also poses clear political challenges at a time when China is trying to smooth over trans-Pacific disputes.

In recent weeks, China announced a halt to its controversial construction of artificial islands in the South China Sea. It has also had an uncommonly muted response to American accusations of digital espionage.

The devaluation risks inflaming a seemingly dormant political issue in the United States: whether China manipulates its currency to gain a trade advantage. Critics in Congress have long argued that the renminbi is undervalued and that this dynamic has prompted many companies to move production to China.

“For years, China has rigged the rules and played games with its currency, leaving American workers out to dry. Rather than changing their ways, the Chinese government seems to be doubling down,” said Senator Chuck Schumer, Democrat of New York.

Under President George W. Bush and now under President Obama, the Treasury has been cautious about publicly criticizing China on currency policy. Treasury officials have not wanted to incite Chinese defiance, and they have tended to respect China’s contention that its trade surpluses, though huge, have shrunk as a percentage of its growing economy.

Buses wait to be exported at the Lianyungang port in China. Credit Agence France-Presse — Getty Images
“We will continue to monitor how these changes are implemented and continue to press China on the pace of its reforms, including additional measures to transition to a market-oriented exchange rate and its stated desire to move towards an economy that is more dependent on domestic demand, which is in China and America’s best interests,” a Treasury representative said in a statement on Tuesday. “Any reversal in reforms would be a troubling development.”

China’s action could also factor into the Federal Reserve’s thinking.

The Fed’s leaders have been talking for months about raising interest rates as a way to curb the considerable monetary stimulus they have delivered to the strengthening American economy. But a weakened renminbi — and the possibility that other countries may follow suit — could mean further weakening of American exports and slower economic growth.

Continue reading the main story
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“It could lower the odds of a Fed rate hike in the near term,” said Thomas Lam, the chief economist for industrialized economies at RHB Securities Singapore, a unit of a Malaysian financial conglomerate, the RHB Group.

The currency situation puts China in a tricky position.

China has the means to stop any unwanted drop in currency. The country has $3.5 trillion in foreign exchange reserves, which it can use to buy back renminbi globally and push up the value.

But the devaluation also comes at a time when China is pushing for broader acceptance of the renminbi, and the exercise of tight currency controls undermines that effort.

The International Monetary Fund contended for years that the renminbi was undervalued, but it dropped that assertion in May. Still, the I.M.F. in a staff report last week suggested that China would need more time to finish preparations for including the renminbi as a global reserve currency.

The I.M.F., in particular, wants to see more evidence that the renminbi is being used outside China, notably for central bank reserves or bonds. The appetite among overseas central banks and bond investors for renminbi-denominated assets has gradually increased.

But part of the demand has been a speculative bet that the renminbi will continue to rise against the dollar. Even small, occasional hints in the last 18 months that the renminbi might weaken have tended to erode such players’ enthusiasm. So Tuesday’s devaluation could damage China’s bid to bolster international use of its currency.

The I.M.F. on Tuesday said that China’s new plan for determining the value of the renminbi “appears a welcome step as it should allow market forces to have a greater role.” But “the exact impact will depend on how the new mechanism is implemented in practice.”

Senator Schumer warned that the devaluation might lower the chances that the renminbi will be recognized by the I.M.F. as a leading currency, as part of the fund’s so-called special drawing rights.

“Unless and until China stops artificially devaluing their currency,” he said, “the renminbi should be barred from consideration as a global reserve currency by the I.M.F.”

China Turned to Risky Devaluation as Export Machine Stalled - New York Times

August 18, 2015 at 9:44pm

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http://www.nytimes.com/2015/08/18/business/international/chinas-devaluation-of-its-currency-was-a-call-to-action.html?emc=edit_th_20150818&nl=todaysheadlines&nlid=56381892

INTERNATIONAL BUSINESS

China Turned to Risky Devaluation as Export Machine Stalled
By KEITH BRADSHERAUG. 17, 2015


HONG KONG — When Prime Minister Li Keqiang convened the Chinese cabinet last month, the troubled economy was the main topic on the agenda.

The stock market had stumbled after a yearlong boom. Money was flooding out of the country. Most ominously, China’s export machine had stalled, prompting labor strikes.

In a little-noted advisory to government agencies, the cabinet said it was essential to fix the export problem, and the currency had to be part of the solution.

With the government keeping a tight grip on the value of the renminbi, Chinese goods were more expensive than rivals’ products overseas. The currencies of other emerging markets had fallen, and China’s exporters could not easily compete.

Soon after, the Communist Party leaders issued a statement also urging action on exports.

It all set the stage for the currency devaluation last week that resulted in the biggest drop in the renminbi since 1994.


How China Is Trying to Stabilize Its Economy
China’s devaluation of the renminbi was the latest in a series of moves over the past two months to help boost the slowing Chinese economy.

But the sharp focus on the domestic agenda also complicates China’s global ambitions. By devaluing the currency, the authorities, who have been pushing a big expansion of global investments, are eroding some of the country’s buying power overseas.

China appears willing to make those trade-offs. Manufacturing, the core engine of growth in the world’s second-largest economy, is just too critical. And the pressures have been mounting, with exports last month plunging 8 percent compared with 2014.

The weakness is creating problems elsewhere in an economy already rattled by a real estate slump. Across the country, millions of workers and thousands of companies are feeling the pain, as sales slip and incomes drop.

Zhang Wei, a carpenter at a construction materials market in Guangzhou, says customers’ orders are plunging. Hu Sheng, a seller of metal siding, had to cut prices to the bone, and even then his sales dropped by a third.

At a covered market in Guangzhou, Zhang Xiaojun sat dejectedly behind a counter where half a dozen gutted, plucked chicken carcasses lay. “I was selling 30 to 40 chickens a day last year,” he said. “Now at best I sell only 10 chickens in a day, and I can’t make a living.”

After the top-level meetings in July, officials moved quickly. On Aug. 11, the central bank announced a new policy for determining the value of the renminbi, saying it would allow market forces to play a greater role.


Although the central bank denied the decision was motivated by the export issue, officials were assured a quick, economic benefit. Once market forces were unleashed, they resulted in the sharp and swift decline of the currency, which dropped by 4.4 percent last week.

But the devaluation creates uncertainty, potentially undermining confidence in what had been the world’s steadiest and most enduring economy. It will also test President Xi Jinping and the leadership, as they try to balance their domestic needs and global expansion. A deteriorating economy could force them to pick between the two agendas.

“For Xi Jinping, domestic stability is the top priority,” said Willy Lam, a specialist in Beijing politics at the Chinese University of Hong Kong. “It’s going to be a higher priority than China’s international responsibilities.”

A Shaky Foundation

The biggest casualties of the economic woes are the workers.

Zhou Ping, 23, moved from central China to Guangzhou in Guangdong Province three years ago and got hired cutting fabric at a garment factory. He lost his job three months ago and has been unable to find any work.


Growing Unrest
Labor unrest in China has increased as the country’s economy has faltered, especially in the provinces that produce goods for export. One focus now is on unpaid wages, a sign of struggling businesses in a troubled economy. Previous labor actions were largely about pay increases, reflecting a strong job market.

About 500 workers of Henan Dingsen Clothing, a cloth maker in Shangqiu City in Henan province, strike and march to a government building in July over receiving i.o.u.s for unpaid wages for three months.
Over 1,000 workers at Compart Technologies, a hard-disk drive maker in Chongqing province, strike in July for receiving i.o.u.s for unpaid wages and housing funds for eight months.
More than 1,000 workers strike in July at the Guangdong Elecpro Electric Appliance manufacturer in Foshan in Guangdong province demanding severance pay after a large layoff.
*Labor protests peaked in January 2015 because workers pressed for back wages and made other demands before returning to their hometowns for Chinese New Year.
Sources: China Labor Bulletin; New York Times reporting
By The New York Times
“Competition is too intense; there are so many people fighting for each job,” he said. “However, I have no plans to return to my home province just yet. My friend is letting me take turns in his bunk bed.”

While China lacks reliable unemployment statistics, the labor market is under significant pressure. Pay is barely climbing faster than consumer prices. Millions of Chinese are looking for work.

It is a sensitive issue. The leadership has indicated that slower economic growth is acceptable, provided the labor market remains strong. Any instability could prompt an internal debate about whether the government can manage a slowdown and still meet its global goals.

If President Xi cannot deliver rising living standards, “that will undermine the long-term sustainability of the regime,” said Li Daokui, an economist at Tsinghua University in Beijing.

When Deng Xiaoping began opening the country’s economy to capitalism and foreign investment in 1979, he started in a series of duck-farming villages in southeastern China’s Guangdong Province, next to Hong Kong. His successors subsequently built on the plan, turning the experiment into the world’s biggest hub of light industry manufacturing, producing items like microwave ovens and laptop computers.

The area is a crucial backbone of China’s economic story. Guangdong’s main cities — Shenzhen, Dongguan and Guangzhou — developed into a vast urban sprawl, each with a population the size of Los Angeles.


Butchers cut meat at a market in Guangzhou, one of the cities in the Guangdong province that developed around light industry manufacturing that now has a population the size of Los Angeles. Credit Adam Dean for The New York Times
As exports surged, the country produced double-digit growth for decades. The newfound wealth prompted China to find opportunities overseas, which helped expand its international influence and support its domestic needs.

But the export business is now suffering.

Sales have slumped for furniture makers, for example, as demand overseas has flagged, particularly in Europe. Chinese families are also buying less, as sagging home sales and real estate prices mean fewer people need to decorate new apartments.

“Many furniture factories in the Guangzhou area have closed over the past year,” said Rachel Wang, the sales manager at Hongyuan Furniture Manufacturing, a Guangzhou maker of home saunas. Hongyuan Furniture has helped offset a slowdown in Europe by expanding to Australia.

Charles M. Hubbs, the owner of Premier Guard, which makes medical equipment in Guangdong Province, said the devaluation would help, estimating the currency drop would add $300,000 a year in profit. But it’s not enough, he said, to make the company more competitive.


Despite the problems in the job market, monthly factory wages, which have increased tenfold at Premier Guard over the last decade, remain high and eat into profit. Mr. Hubbs is considering moving part of his manufacturing operation to Texas, as a way to reduce freight costs and to avoid American import taxes.

Photo

A worker at Premier Guard, which makes medical equipment in Guangdong province. The owner of the company is considering moving part of his manufacturing operation to Texas, as a way to reduce freight costs and to avoid American import taxes. Credit Adam Dean for The New York Times
Even if the currency drops by 8 to 9 percent, it is “not going to bring any business back to China,” he said. “Nobody’s going to come back to China,” for fear the renminbi might strengthen later.

As sales fall and factories close, strikes and other labor actions have been increasing, to nearly 200 a month, according to the China Labor Bulletin, a nonprofit group based in Hong Kong that calls for collective bargaining rights. Four years ago, it was around a dozen a month.

At the Zhanheng Toys Electronics Company in Dongguan, 700 workers raucously demonstrated on Aug. 4, demanding back wages. Management had suddenly left and stopped paying workers.

Such disappearances are common in China. If they stick around, managers of failed companies may be detained by the police, who search for signs of embezzlement and try to force executives to dig into their savings to pay creditors.

“The Hong Kong boss ran away,” said a security guard at Zhanheng’s front gate on Thursday afternoon who declined to give his name. No managers were left to answer questions, the guard added. The local government ended up paying the back wages a day later. It is a routine practice after business failures in China, where local governments are responsible for maintaining social stability.

Wu Yukan, a plastics distributor who is also the vice chairman of the local chamber of commerce, came to the factory gate in a black Audi with two aides.


At the Zhanheng Toys Electronics Company in Dongguan, 700 workers raucously demonstrated on Aug. 4, demanding back wages. Management had suddenly left and stopped paying workers. Credit Adam Dean for The New York Times
“This factory owes me hundreds of thousands of renminbi for raw materials,” he said. “The economy is not doing well. I have other clients who also owe me a lot of money, and from whom I have not been able to collect as well.”

Balancing Needs

Over a thousand miles away from the turmoil in Guangdong, at a monolithic building in Beijing, Zhou Xiaochuan, the governor of the People’s Bank of China, has the task of guiding the currency at a complicated time, at home and abroad.

Tall, cerebral and urbane, he has written a series of books and long academic articles in Chinese on economics. He taught himself English. He has been steeped in Communist Party politics from childhood. His father, a deputy minister in the early 1960s, mentored a young Jiang Zemin, who later served as China’s leader for a decade.

Mr. Zhou needs those economic and political strengths, as the country tries to rev up exports and keep its international expansion on track.

While he needs to let the renminbi respond to the market, he must also maintain control over the currency. Mr. Zhou also wants to convince the world that the renminbi deserves a place among the elite group of global reserve currencies, which includes the dollar, euro, yen and pound.


In March, Mr. Zhou welcomed Christine Lagarde, the managing director of the International Monetary Fund, to a conference in Beijing. He told Ms. Lagarde and top global bankers that he would dismantle the many currency restrictions.

“A set of pilot policies and regulations will be released this year, to basically achieve the requirements for a currency that can be used more easily,” he said.

Mr. Zhou was making the case that China could meet the I.M.F. requirements for joining the basket of global reserve currencies known as the special drawing rights. The biggest test was whether the renminbi was considered “freely usable.”

For years, China set an initial price for the renminbi in dollars each morning and then allowed the currency to trade in a narrow band. The initial price was somewhat arbitrary. A week before the devaluation, an I.M.F. report expressed concerns, suggesting a more market-oriented approach.

Starting last Tuesday, the central bank said it would give the market more sway, basing the initial level on the previous closing price. The I.M.F. gave its cautious approval, saying it “appears a welcome step.” But the execution, the fund said, would be critical.

Mr. Zhou faces a delicate task.


He used to be able to set monetary policy without worrying that money would rush out of the country if interest rates were too low or the currency too high. With the loosening of controls on moving large sums of money, he must now navigate the pressures of the market.

He also has to appease many constituencies.

The commerce ministry has long lobbied for a weak renminbi to help the country’s exporters. But Mr. Zhou can’t let the currency drop too much, lest he antagonize the Chinese companies investing abroad and the Chinese families sending students overseas.

“You see it as more than 100 million Chinese travel abroad, and there are more than 800,000 Chinese students studying overseas,” said Yu Yongding, a former member of the central bank’s monetary policy committee. “They want a strong renminbi.”

Erica Law, a 27-year-old Chinese investment banker, sat in a Starbucks in Guangzhou on Thursday, talking about her plans to buy an apartment in Europe.

As a student, Ms. Law studied and traveled in Europe. She has since returned on vacations, maintaining a love affair with a continent that, with its clean air and well-preserved historic monuments, still seems so different from China.

The exchange rate now factors into her plans.

“The recent days of renminbi devaluation are not of that much concern,” she said. “However, if the devaluation trend continues and reaches for example 10 to 20 percent, then it will really affect my travel and investment decisions — perhaps at that time, I will consider more vacation and investing options closer to home.”

Michael Forsythe contributed reporting from Hong Kong, and Michael Schuman from Beijing. Kiki Zhao and Patrick Zuo contributed research from Beijing.

Companies feel effect of Tianjin blasts as $625m of cars wrecked - FINANCIAL TIMES

August 18, 2015 at 3:13pm

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http://www.ft.com/intl/cms/s/0/ad62904c-44ce-11e5-b3b2-1672f710807b.html#axzz3j8lSpmZW

August 17, 2015 1:04 pm
Companies feel effect of Tianjin blasts as $625m of cars wrecked
Kana Inagaki in Tokyo, and Tom Mitchell and Lucy Hornby in Beijing


Companies including Toyota and John Deere have suspended operations near Tianjin in northern China, widening the supply-chain disruption from the two huge explosions last week at one of the world’s busiest ports.
Five days after the blasts at a warehouse for toxic chemicals killed more than 100 people, multinationals are still trying to gauge the extent of damage on facilities and products. Company officials say that assessing the impact has been difficult as they have been prevented from visiting facilities located as far away as 5km from the site of the explosions.

Chinese state media have reported that 8,000 cars worth an estimated Rmb4bn ($625m) were destroyed in the blasts, including 2,700 made by Germany’s Volkswagen and 1,500 by France’s Renault. Hyundai Motor of South Korea said 4,000 cars parked near the area were damaged while Japan’s Mitsubishi Motors put the potential damage at about 600 vehicles.
“The authorities haven’t told us when we can get back to work,” said Liu Jinghua, a trader at a motor parallel import centre. “We don’t have any cars that were destroyed and our imports are arriving on time, but we won’t be able to get them through customs.”
Toyota, Japan’s biggest car group, said it was halting production until Thursday at two plants in and near Tianjin. The two factories, which are operated with its Chinese partner FAW, produce about 440,000 vehicles annually including the Corolla. Credit Suisse estimates about 1,500-2,000 cars a day are produced per day at the factories.
Toyota said about 50 employees who live near the explosions were injured, including two local dealers who were hurt by broken glass.
Audi, VW’s premium division, said none of its cars were destroyed but anticipates minor damage at one of its warehouses. Some of its employees were among the more than 6,000 evacuated from their homes and are now living in hotels.
“For now, the impact seems limited,” said Credit Suisse analyst Masahiro Akita.
For many of the carmakers, the fallout from the Tianjin blasts is another headache for an industry grappling with slowing economic conditions in the world’s biggest car market.
Outside the motor sector, John Deere, the US maker of agricultural and construction equipment, suspended operations near Tianjin after some of its workers were injured.
Japanese retailer Aeon said on Monday that it did not know when it could reopen a local shopping precinct that was damaged by the explosions. The company said one of its employees suffered a minor injury. China Vanke, the country’s largest housebuilder, said 4,990 residential units were damaged.
While the damage still needs to be assessed, Credit Suisse says a large number of Chinese insurance companies will be affected, with initial insured losses put at $1bn-$1.5bn. A large portion of those losses are expected to be covered by reinsurance.
The explosions also briefly affected off-loadings of iron ore and soybeans, and disrupted the discharge of crude oil and chemicals. But with most berths undamaged, the primary disruption came from the cordoning-off of most of the roads around the northern section of the Tianjin port. Other areas of the port were mostly undamaged.
“In the north part of Tianjin port, the products can’t be uploaded and the roads are all blocked,” said Sam Song, a branch manager at ALS Minerals Division. “Other parts seem unaffected, and there are a few ports starting to be operational.”
Additional reporting by Gabriel Wildau in Shanghai, Simon Mundy in Seoul, Jennifer Hughes in Hong Kong, and Anna Hsieh

Goldman estimates China's 'national team' stock rescue at $144bn - Financial Times

August 6, 2015 at 3:54pm

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August 6, 2015 6:29 am
Goldman estimates China's 'national team' stock rescue at $144bn
Gabriel Wildau in Shanghai


China’s “national team” has probably spent about $144bn to bolster the country’s fragile stock market, Goldman Sachs has estimated, raising questions about how much firepower remains if stocks resume their recent sharp descent.
The government has not disclosed either the amount of rescue funds it has allocated to the coalition of state financial institutions — known as the “national team” — or how much of this total has already been invested.

But Goldman estimates that China Securities Finance Corp, the state-owned margin lending agency that is the main conduit for injecting rescue funds into the market, has about Rmb2tn ($322bn) at its disposal.
This total includes Rmb1.3tn in loans from large commercial banks, Rmb80bn in bonds issued in early July, and equity capital of Rmb100bn. The People’s Bank of China has also said it has provided liquidity to CSF through re-lending and other channels.
Tallying up how much of this Rmb2tn total has already been spent is more challenging.
Media leaks about the size of the national team’s war chest are likely to have come from officials eager to communicate the government’s muscular response to the market turmoil. By contrast, the national team has good reasons for keeping quiet about how much it has already spent, since this could prompt investor worries that the government’s resources are nearly exhausted.
Indeed, shares tumbled by 10 per cent last week after local media cited anonymous sources saying that the national team was preparing its exit plan.
“The episode has underlined the difficulty the government faces in the task it has set itself of convincing investors that equity markets will deliver sustained gains,” said Chang Liu at Capital Economics.
“The market is driven more than ever by speculation about official intentions and any positive momentum will raise questions about whether support will be withdrawn.”
Goldman estimates the current amount spent at Rmb860-Rmb900bn. Media reports in early July indicated that CSF lent Rmb260bn to brokerages to support stock purchases, bought 400bn in stock directly, and invested another Rmb200bn in mutual funds.
Using an alternative methodology that compares fund inflows to the stock market from traceable sources with the total inflows necessary to keep the index at current levels, Goldman reached an estimate of Rmb900bn for national team investment in June and July.
“We believe the current market concern over the Chinese government’s potential exit from its market support is probably overdone,” Chengjie Liu and his colleagues wrote this week.
“With the government having just spent a considerable sum to stabilise the market, it is too early for them to reverse course, especially given the still-skittish manner in which the market is trading.”
The problem for the government is that it apparently has little to show for the money spent.
The Shanghai Composite Index was at 3,682 at midday on Thursday, just 9.2 per cent above the low point touched at the height of the selldown on July 9 and 28.9 per cent below the seven-year high of 5,178 reached on June 12.
On the other hand, the government is probably not comparing the market’s current level to its recent highs and lows, but rather to the unknown depths the index might have plumbed had the national team done nothing.

Xi’s history lessons - TIME

August 16, 2015 at 4:07pm

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http://www.economist.com/news/leaders/21660977-communist-party-plundering-history-justify-its-present-day-ambitions-xis-history?spc=scode&spv=xm&ah=9d7f7ab945510a56fa6d37c30b6f1709

Xi’s history lessons

The Communist Party is plundering history to justify its present-day ambitions
Aug 15th 2015 | From the print edition


IN EARLY September President Xi Jinping will take the salute at a huge military parade in Beijing. It will be his most visible assertion of authority since he came to power in 2012: his first public appearance at such a display of missiles, tanks and goose-stepping troops. Officially the event will be all about the past, commemorating the end of the second world war in 1945 and remembering the 15m Chinese people who died in one of its bloodiest chapters: the Japanese invasion and occupation of China of 1937-45.

It will be a reminder of the bravery of China’s soldiers and their crucial role in confronting Asia’s monstrously aggressive imperial power. And rightly so: Chinese sacrifices during that hellish period deserve much wider recognition. Between 1937, when total war erupted in China, and late 1941, when the attack on Pearl Harbor brought America into the fray, China fought the Japanese alone. By the end of the war it had lost more people—soldiers and civilians—than any other country bar the Soviet Union.

Yet next month’s parade is not just about remembrance; it is about the future, too. This is the first time that China is commemorating the war with a military show, rather than with solemn ceremony. The symbolism will not be lost on its neighbours. And it will unsettle them, for in East Asia today the rising, disruptive, undemocratic power is no longer a string of islands presided over by a god-emperor. It is the world’s most populous nation, led by a man whose vision for the future (a richer country with a stronger military arm) sounds a bit like one of Japan’s early imperial slogans. It would be wrong to press the parallel too far: China is not about to invade its neighbours. But there are reasons to worry about the way the Chinese Communist Party sees history—and massages it to justify its current ambitions.

History with Chinese characteristics
Under Mr Xi, the logic of history goes something like this. China played such an important role in vanquishing Japanese imperialism that not only does it deserve belated recognition for past valour and suffering, but also a greater say in how Asia is run today. Also, Japan is still dangerous. Chinese schools, museums and TV programmes constantly warn that the spirit of aggression still lurks across the water. A Chinese diplomat has implied that Japan’s prime minister, Shinzo Abe, is a new Voldemort, the epitome of evil in the “Harry Potter” series. At any moment Japan could menace Asia once more, party newspapers intone. China, again, is standing up to the threat.

As our essay on the ghosts of the war that ended 70 years ago this week explains, this narrative requires exquisite contortions. For one thing, it was not the Chinese communists who bore the brunt of the fighting against Japan, but their sworn enemies, the nationalists (or Kuomintang) under Chiang Kai-shek. For another, today’s Japan is nothing like the country that slaughtered the inhabitants of Nanjing, forced Korean and Chinese women into military brothels or tested biological weapons on civilians.


ESSAY: The unquiet past - Asia's second-world-war ghosts
Granted, Japan never repented of its war record as full-throatedly as Germany did. Even today a small but vocal group of Japanese ultra-nationalists deny their country’s war crimes, and Mr Abe, shamefully, sometimes panders to them. Yet the idea that Japan remains an aggressive power is absurd. Its soldiers have not fired a shot in anger since 1945. Its democracy is deeply entrenched; its respect for human rights profound. Most Japanese acknowledge their country’s war guilt. Successive governments have apologised, and Mr Abe is expected to do the same (see article). Today Japan is ageing, shrinking, largely pacifist and, because of the trauma of Hiroshima and Nagasaki, unlikely ever to possess nuclear weapons. Some threat.

The dangers of demonisation
China’s demonisation of Japan is not only unfair; it is also risky. Governments that stoke up nationalist animosity cannot always control it. So far, China’s big show of challenging Japan’s control of the Senkaku (or Diaoyu) islands has involved only sabre-rattling, not bloodshed. But there is always a danger that a miscalculation could lead to something worse.

East Asia’s old war wounds have not yet healed. The Korean peninsula remains sundered, China and Taiwan are separate, and even Japan can be said to be split, for since 1945 America has used the southern island of Okinawa as its main military stronghold in the western Pacific. The Taiwan Strait and the border between North and South Korea continue to be potential flashpoints; whether they one day turn violent depends largely on China’s behaviour, for better or worse. It is naive to assume America will always be able to keep a lid on things.

On the contrary, many Asians worry that China’s ambitions set it on a collision course with the superpower and the smaller nations that shelter under its security umbrella. When China picks fights with Japan in the East China Sea, or builds airstrips on historically disputed reefs in the South China Sea, it feeds those fears. It also risks sucking America into its territorial disputes, and raises the chances of eventual conflict.

Post-war East Asia is not like western Europe. No NATO or European Union binds former foes together. France’s determination to promote lasting peace by uniting under a common set of rules with Germany, its old invader, has no Asian equivalent. East Asia is therefore less stable than western Europe: a fissile mix of countries both rich and poor, democratic and authoritarian, with far less agreement on common values or even where their borders lie. Small wonder Asians are skittish when the regional giant, ruled by a single party that draws little distinction between itself and the Chinese nation, plays up themes of historical victimhood and the need to correct for it.

How much better it would be if China sought regional leadership not on the basis of the past, but on how constructive its behaviour is today. If Mr Xi were to commit China to multilateral efforts to foster regional stability, he would show that he has truly learned the lessons of history. That would be far, far better than repeating it.