In the midst of a huge loss in the China markets, the government is exposing an interesting side to a government managed economy - picking winners and losers in a market propped up by the state.
China is experiencing losses in its market place where companies are state-owned or state-controlled. Up until now, they have been able to force banks to loan to companies that didn't have good value. Eventually, the banks pay for that with bad loans and reduced stock value, but in this case, the government props them up with more cash - potentially, as much as $500 Billion.
Stephen Roach, formerly of Morgan Stanley Asian said on CNBC today that "share dumping" has become an issue with the government and is being investigated. Share dumping amounts to people selling off stock that is dropping, and we would encourage private investors to do that. But, in the case of state-owned or managed companies, this kind of behavior is being discouraged. Good luck with that. Smart people bale out of that kind of stock or suffer the losses in silence.
Now, how do they pick winners and losers in an economy that is government controlled? In the absence of any discussion by the leadership of the exchanges or monetary policy in China (a leadership which has said next to nothing), we can guess that the more senior the leadership involvement, the more likely the bailout will be. That puts telecoms and the military in much better circumstances than the average business venture.
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