2008: Beware of Excessive Macro-Control

Author: [Site Administrator]
Source: [Fund Analysis]
Article type: Regular article
Published: 2008-1-12 16:52:28
Column: Expert Perspectives

From the perspective of traditional Chinese medicine, the principles of treating a person and governing a state are interchangeable. Macroeconomic regulation is clearly an extremely important aspect of governance. The diseases of the economy and those of the human body follow the same logic.

Chinese medicine classifies the states of disease into three kinds: pre-disease, incipient disease, and manifest disease. The diseases of the economy likewise have these three states. Disease is not a mechanical, static concept — its state can continuously transform and change. Many times, disease is caused by the medicine itself. A minor illness turned into a major one by medication is not a fairy tale. Economic problems work the same way.

Disease has no fixed state, and neither does medicine. From a broad perspective, everything under heaven is both medicine and poison. When it corresponds to the condition, it is medicine; when it doesn't correspond, it is poison. And this correspondence has no a priori necessary law — everything is ready-made in the present moment, the resultant of all component forces at that moment.

But more importantly, for all diseases, any external medicine is always merely auxiliary. The human body itself possesses a supreme medicine superior to all external remedies. True medical treatment must ultimately activate this supreme inner medicine — only then can the root cause be truly addressed. Once the body's own supreme medicine is activated, healing occurs without active treatment. Otherwise, taking medicine every day will turn even divine medicine into poison.

Furthermore, medication must be tailored to the individual. For a youth brimming with vitality and an elderly person with depleted reserves, even for the same illness, the medicine cannot be the same. Similarly, for the same person at different stages of life, in different geographical environments, and in different seasons, the same illness requires different medicine.

For the Chinese economy, from a grand historical perspective, we are still brimming with vitality. Against this great historical backdrop, any medication applied to the economy must stay within the boundary of stimulating the body's own self-repair function, and must not overdose to the point of damaging our vitality.

More importantly, our economic vitality is abundant, but our meridian system is far from unblocked, and our Ren and Du channels are far from connected — this is precisely the fundamental reason why our economy is particularly prone to febrile diseases. For febrile diseases, heat-clearing medicine alone is useless — it can't even treat the symptoms, let alone the root cause. When febrile disease goes untreated at its root over the long term, the imbalance of water and fire, the searing of heat-toxins, will congeal into tumors. When tumors spread, the condition becomes intractable.

The key to treating the root cause is to unblock the meridians, open the Ren and Du channels, and thereby allow the body's vitality to circulate in timely fashion — thriving without cease, flowing smoothly throughout. Any system has its stages of formation, sustenance, decay, and dissolution. Treating the root does not mean achieving immortality, but rather fulfilling one's natural lifespan. Similarly, economic development has its stages and its formation, sustenance, decay, and dissolution. Timely treatment and cultivation mean fulfilling one's natural lifespan — allowing each corresponding stage of the economic system's development to exert its maximum power and extending its lifespan and development period as much as possible.

Some of the most fundamental units in China's economic structure have not yet fully developed. We are full of vitality, but our organs are immature and our functional systems are at an extremely immature stage. Therefore, any treatment we undertake cannot be separated from nurturing these functional systems. Any overly potent medicine has an extremely harmful effect on extremely immature functional systems. An economic system that is overdosed and randomly medicated during its developmental stage, ultimately causing certain functional systems to become permanently underdeveloped and leading to long-term distorted economic growth — this is not a rare occurrence in the history of the world economy.

A healthy human body requires, first of all, healthy organs and functional systems. Likewise, a healthy economic system is completely unimaginable without healthy basic unit-systems. For China — a teenager in market economics — the key is sound physical development. Without this, any treatment of disease is meaningless.

The reason we say "beware of excessive macro-control in 2008" is that our economy is currently at a critical stage of adolescent development, yet many of our most fundamental units have not reached the proper developmental level. At this juncture, should we use potent medicine to forcibly suppress certain symptoms, or use appropriate medication for steady guidance while catching up as quickly as possible to cultivate the parts that should have been developed — this carries decisive significance for the long-term development of the Chinese economy.

Below, let me add a note on the index's trajectory. The Shanghai Composite's correction from 6124 points was precisely completed at the 3/8 level of 3600, which is 1350 points — the difference between the two is less than 4 points. The first high point of the recovery rally falls at the 2/8 position, which is below 5224. Currently, oscillation is occurring at the position of the original double top's neckline at 5462 and half of the total decline at 5451. The movement is extremely technical. The next level is at the 1/8 position of 5674, and the 2/3 retracement is at 5675. Therefore, this level has significant technical importance and is the watershed for judging the strength of the medium-term recovery. It is worth noting that due to factors like PetroChina and China Railway being newly included in the index calculation, technical analysis of the Shanghai Composite requires necessary adjustments for these components.