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Beware of a Cliff-Edge Economy After the Olympics (Part 2)

2008/8/7 8:14:49

I have things to do this afternoon, so I'll finish that article this morning. Signing off after this, goodbye.

(Continued from Part 1)

As for what was meant by "retail-investor-style regulators being trended by trends rather than trending trends"—that was actually a euphemistic way of putting it. To be blunt, they're worse than retail investors. In the market, people live and die, rise and fall—they simply act according to their nature and judgment. As long as they stay within the bounds of the law, any behavior is perfectly justified. But those who are worse than retail investors are born with the compulsion to remake retail investors—and many among them are themselves victims of such remaking games. That they turn around and play the same game is probably just a natural manifestation of humanity's compensatory instinct.

A regulator who doesn't wash its heart clean and thoroughly abandon the game of remaking people can never be qualified or capable of being a competent regulator. In the market, the only party whose errors can cause irreversible damage is the regulator itself. The ones who most need risk education are the regulators themselves. As for market participants' own mistakes—the law, and more importantly the market itself, delivers the most direct punishment. In the face of the market, so-called "investor risk education" is nothing but a joke. Who is more qualified and efficient than the market itself at delivering the most direct, most profound education to participants? The key issue is not how well investors have been educated, but rather, under the market's merciless tutelage, how much progress our still-paternalistic regulators have actually made—that is the critical question of all critical questions.

Only a regulator that has thoroughly abandoned the game of remaking people is qualified to face the problem of "retail-investor-style regulators being trended by trends rather than trending trends." In the market, people following trends to maximize profits is natural law, perfectly justified. The only market force that must violate this market commandment is the regulator itself. A truly competent regulator must act counter to trends. In more detail: when the market has no trend, guide out the desired trend; once a trend has formed, only monitor—don't regulate—the hot sector, and instead direct regulatory force toward guiding new sector hotspots and trends. This is the striking up of new music to achieve the self-regulation.and self-control of old hotspots without active intervention—this is the true meaning of laissez-faire governance, of "trending trends."

The most basic common knowledge for any regulator is: first, under the premise of human-directed regulation, the rotation of hotspots across different sectors is the only sustainable means of maintaining the overall temperature equilibrium of the economic system. Second, a sector that has been a hotspot means that in the interval between cooling and being re-ignited, there will be a net outflow of surplus capital and other combustible resources—these combustible resources are the most precious assets for maintaining stable development under overall temperature equilibrium, and they absolutely must not flow out of the total economic system; they can only be kept rotating between hotspots within the total system. In plain language: even if it rots, it must rot inside this big pot of the total economy. Third, for meat to willingly rot in the big pot, China's total economic system must become a sustainable new engine for global capital, with hotspots constantly rotating within it, new combustible sectors constantly emerging, and old sectors finding new momentum to reignite after natural adjustment. Only through such a virtuous cycle will there be increasingly more meat willingly rotting within. Fourth, the ultimate measure of the overall effectiveness of economic regulation is, at root, whether the amount of meat willingly rotting inside continues to grow steadily.

The hope for China's economy lies precisely in the fact that there are still so many combustible fields waiting to be developed. Our big pot still has staggeringly vast room for expansion. Everyone is now talking about how China's old unsustainable development model has reached its end—this merely signals the short-term cyclical contraction of combustible space in old sectors. If we sit around waiting for old sectors to trade time for space and adjust their way into new combustibility, that is waiting to die. Right now is the perfect time to vigorously push the development of new sectors. While this work should have been done long ago, it's still not too late—otherwise, if something like the ChiNext board keeps getting delayed endlessly through interminable dithering, what hope is there?

As for how to create more combustible sectors—there really isn't much to say. If everything gets dragged out endlessly the way 3G and the ChiNext board have been—amounting to nothing but lip service—then what is there worth saying? As for the obstacles to creating combustible sectors, or more directly, the obstacles to further deepening economic structural reform—that's even less worth discussing. Because anyone whose conscience hasn't been fed to dogs and who hasn't themselves transformed into a dog would know exactly where the crux of the matter lies, even if they were blind—so what is there to say?

As for the fact that this article has seemingly been miles off-topic up to this point—that's merely an illusion. All the content above is directly relevant to the title. Only by thoroughly analyzing the most fundamental issues can we truly confront the problem raised by the title. From the perspective of market trends, if those laughable and lamentable so-called regulatory measures continue, then the phenomenon described in the title will inevitably occur. A massive, nearly unanimous market sentiment expectation has already formed into an enormous market force. To turn the tide at this point, the only entity capable of doing so is the regulatory force that need not be trended—provided, of course, that this force possesses correct understanding and methodology; otherwise, it will at any moment become the catalyst for a market cliff-edge.

A clear-headed understanding must include: for a naive system like China's market economy, even a sector as troubled as real estate still has enormous developmental potential and room from a macro-economic perspective. Current real estate prices, viewed on a historical scale, are still interim prices within a major bull market trajectory. The key question is merely whether the current adjustment completes in a cliff-edge fashion or a platform fashion.

A clear-headed understanding must include: for a naive system like China's market economy, before the basic economic framework matures, there fundamentally cannot exist so-called excess liquidity. So-called excess liquidity is nothing but the net flow of surplus capital and other combustible resources—this is China's economy's most precious resource. The issue is whether we have enough combustible sectors and corresponding rotation, not that there are too many resources. If this misconception isn't corrected early, good macro-regulation can never be achieved.

A clear-headed understanding must especially include: a cliff-edge adjustment causes enormous damage to the overall economy, and the time and resources needed for healing are equally enormous. While a competent regulator cannot make adjustments disappear, it can choose the form of adjustment—and a platform-style ultimate adjustment is currently the best option for China's economy. Readjusting our steps within a platform adjustment, making up the lessons we've missed—this is the only correct choice right now.

As for the inflation everyone hotly debates—it is nothing more than thermal dissipation from an economic system that hasn't been effectively built and whose operational regulatory lubrication is insufficient. Treating inflation as the disease is a superficial view; the root lies in the construction and operation of the economic system. Trying to forcibly suppress inflation without addressing these fundamentals will ultimately lead to the dead end of high inflation with low growth or even negative growth. When that happens, you'll know what real sorrow tastes like—what we're facing now is nothing by comparison.