Secretary Of the Treasury Hank Paulson's legacy
This entry was posted on 9/15/2006 9:22 AM and is filed under Chinese Equity Investments.
Secretary of the Treasury, Hank Paulson wants to help the Chinese. The Chinese need help, but their government does not. Before he felt the need to diversify his portfolio, Secretary Paulson and his colleagues did the Chinese government an enormous favor. They convinced the world that Chinese state owned banks actually had value. As a result, the recent IPOs of these banks have pumped what may end up to be $ 40 billion into the Chinese financial system.
With that much champagne in the system, the Shanghai stock exchange, which has shown little growth for the past five years, suddenly came to life. Since the foreigners' help was so successful, the Chinese government has decided that they are no longer needed and has 'temporarily' banned ban on investment by foreign brokerages in the domestic securities industry.
What happens in China should stay in China. To insure that financial information about its dodgy banks and stock market remains in China, the government has authorized its media watchdog, Xinhua, to censor foreign media. Apparently this is common practice in Asia. The Far Eastern Economic Review is being persecuted in Singapore for publishing an article questioning the alleged secrecy of the Government of Singapore Investment Corp.
In relationship based systems, it is necessary to increase relationship capital by spreading around the spoils. Understandably, the Chinese government wants to keep the champagne for itself and not tell anyone about it. This allows the Beijing to avoid badly needed reforms. If Secretary Paulson's fear that "China will not move ahead with the reforms necessary to sustain its growth" comes true, he has no one to blame but himself.
