One of the last entries I prepared for my previous blog addressed the question of whether or not the next economic bubble-burst would begin in China (and probably propagate from there, thanks to the "virtues" of globalization). The speculation was based on a London Times article about a pending "bruising internal power struggle among the highest ranks of China’s secretive ruling Communist Party." Today the Financial Times has a story with the headline, "Warning on China stock market ‘bubble.’" What makes this story particularly interesting, given the context set by the London Times, is the source of the warning:
Cheng Siwei, vice-chairman of the National People’s Congress and an influential figure in Beijing financial circles, warned the mainland stock market could be overheating, after a rise of 130 per cent last year.
My reaction to the earlier article was that any "bruising internal power struggle" could bring about a level of instability that would lead to uneasy feelings about the stock market. If enough people translated those feelings into a shift of investments into something based less on a "fiction of convenience," then this could bring on the sort of crash that would burst the bubble. Cheng seems to have enough confidence in his personal position of influence to state publicly that "The market is based on people’s behaviour," rather than any "theory of value." In other words, as John Kenneth Galbraith did when writing about the concept of money, Cheng has developed his own terminology for representing the market as a "fiction of convenience."
There is also the possibility that a bubble-burst is precisely what some of the agents involved in this power struggle want. Having a stock market at all must be extremely galling to any remaining old-timers who are still passionate about Mao's ideology; and it is not too far-fetched to imagine that they see it as a nightmare from which China must awaken, preferably sooner rather than later. Fomenting an instability that would weaken the market when it is in such a vulnerable state would be just the sort of alarm clock that these ideologues would desire. After all, if they read their Marx along with their Mao, they probably subscribe to the conviction that "Men make their own history" and see this as an opportunity to put theory into practice. Indeed, the sentence from which that phrase is plucked may well capture the state of affairs in not only the China stock market but also the global economy:
Men make their own history, but not spontaneously, under condition they have chosen for themselves; rather on terms immediately existing, given and handed down to them.
Those "immediately existing" terms for bursting a bubble can be found all around the world; but it is beginning to look like the holder of the pin may be in China!