Wednesday, February 28, 2007

China's market plunge

My friend Dan Kubiske, who spent a few years in Hong Kong as a journalist, has an interesting view of today's stock market news. As chairman of the International Journalism Committee in the Society of Professional Journalists, he's done a fair amount of speaking and writing about the comparative natures of free and controlled press systems. Here's Dan:
If there ever was an argument that free media help, not hurt, stability it is the financial news of the past 48 hours.

Depending on who you listen to, the Shanghai market fell because: a.) there was a rumor the government would impose a capital gains tax beginning March 1 or b.) there was a rumor the head of the Shanghai stock exchange was going to resign soon or c.) rumors the government was about to impose new measures to tighten the money supply and slow down the market growth.

The key word in each of these scenarios is “rumors.” Because China does not have independent news media that can dig into and explain the dynamics of the market, and because few people believe anything said in the state-owned papers, the coin of the realm is rumor rather than fact.

For decades the Communist Party of China has argued it cannot allow media to be free from party control because it could cause instability in society. (And this fear is the real big concern that permeates Chinese thinking in the mainland, Hong Kong, and Taiwan. The memories of the warlord period still dominate a lot of thinking.) Of course, the way Hong Kong and Taiwan handle the fear of stability is to be more open so more people can get information that then leads to stability because there is trust (at least more trust) in the business community and government entities. Beijing, however, still seems to think it can keep a lid on information and release only its version of reality. (And yes, this sounds like any other government.) But by doing so – and by not having many other reliable alternative means to check information – Beijing ’s policies of censorship and media restrictions actually promotes instability.

As usual, so far the American media are still hung up on the economic reasons for the fall. None have looked at the very system in China that promotes instability in society or market economics.

Bottom line, when rumors are the major source of action – as they are in any regime that limits press freedom – the society becomes more unstable.
And here's a market update from today, via the Washington Post.

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