Behind the China Crash

By Anthony Bolach

On Friday, FiRe 2015 Host Ed Butler spoke with Mark and Evan Anderson about the China crisis, specifically the recent market declines and ongoing theft of IP rights. The two described banking in China as one of the main issues; the top ten banks in China are representations of the Chinese government and, more importantly, are not really banks at all when examined by international standards.

The banks are simply a distribution scheme for funneling funds, including fake money, and represent top-down control. There is a significant debt problem in the banking sector with much bad debt (over 2 trillion USD, in fact) being hidden through asset management companies (AMCs), all of which seem to be basically insolvent.

The real story in the markets is the domestic market, as a decline in this market will bring down equity markets, a phenomenon which began in mid-summer. As markets fall and China realizes they will not meet predicted GDP figures, the Chinese government intervenes in the economy through the equity markets, struggling to maintain stability in the face of harsh financial realities.

This leads to the ‘China problem.’ According to both men, companies will continue to face growing financial problems as they realize that the more exposed they are to Chinese markets, the more risk they take on. This risk will only grow as the Chinese government continues to make decisions postponing the eventual decline in markets. Firms doing business in China will have to re-evaluate their risk models, as the business environment has changed over the last four to five years. Going forward, companies will be forced to make a new risk calculation to account for the changes.

In a later breakout session, FiRe participants went on to discuss the extreme measures taken by the government to adjust markets. Cyber expert Shannon Smith noted that “When the government puts people in jail for selling their shares, it is no longer a market”, while Nxt-ID’s Gino Periera observed“Given the propensity to overstate GDP, even the lowest number is optimistic. There is a possibility they are already in recession.”

Mark Anderson finished with the comment: “How long can you hold your finger in the dike? At some point truth will prevail and the market will speak…you can postpone it but not avoid it.” Mark Anderson