TOM PLATE WRITES (in the South China Morning Post) — There are more than a few financial figures in PRC circles that no longer trust Western financial advice (or most advisers) any more than they have to. There is a rich, as it were, history, behind the mistrust. And in this, Mr George Soros, no less, has a role. Here is the story.
We start our narrative with the Asian Financial Crisis of the late 1990s. For years China had been relentlessly advised by Treasury experts in the Clinton administration, and by other prominent experts in the West, to stop babying its coddled currency and let it go outdoors onto the international markets to play fair and square with other big-time currencies. For decades this has been the constant whining pitch of the geek chorus in the West.
In fact, the argument has merit if China is to secure its place in the competitive world marketplace, of which central cosmopolitan idea Zhu Ronghi, the great former premier, was China’s world champion. In fact, years later, Beijing itself moved in exactly that direction, in part to satisfy IMF that its currency would be cleanly convertible and so globally market-worthy. But two decades ago, China was not ready for the big bad sandbox, felt both crowded and rushed by the West, and so held back.
Surprise: Suddenly a vile regional currency crisis swept across Asia from Bangkok to Seoul to Hong Kong. Western speculators, allegedly including George Soros (in 1992 he hit his billionaire jackpot with a nervy mega-plunge against the sodden British pound), dumped bundles of cash on the bet that weak Asian currencies would lose value, and pocketed fortunes via massive “shorting” campaigns that in effect ground down Asian currencies even more.
China, reminbi-exposure caution then working to great benefit, escaped all that pain – and to that I say thank goodness. So did our more globally sensitive Western souls who were unnerved by the global turbulence, by the frailty of the fraying ‘international economic architecture’ – and by the heartless display of sheer amoral speculative greed at the expense of the Asian people. After all, everyone knew that massive currency speculation can rock even relatively well-managed small-and-medium size economies – just as easily as a tsunami can overwhelming the most competently installed roofing over a house. The mega-investor turned philanthropist George Soros, who in 1992 ‘shorted’ the sinking British pound into a fortune, knew well of what he spoke when he depicted predatory financial speculators as the destructive “Al Qaeda” (his words) of the financial world.
Now for a quick side-note: If you claim that ‘Al Qaeda’ short-attacking, derivatives-spinning and hedge-funding more or less belong in the same foul and corrupt financial fruit salad, you might be accused of committing a category mistake. Surely such a broad definition is forgivable given the delicate, easily fractured interconnectedness of the global financial architecture. But caution and respect are in short supply where greed is abundant. And so sure enough, in 2008 -only a decade after the near-death experience of the Asian Financial Crisis – the U.S. economy itself almost collapses into depression. The reason: a new financial ‘Al Qaeda’ investment house of cards known as the ‘subprime’ credit-default crisis. Need a quick primer on ‘subprime’ but were afraid to ask? See the Hollywood film The Big Short, inspired by the book of the same name. Your columnist is serious. Do yourself a favor – don’t miss pop star Selena Gomez explaining CDOs. Priceless.
With ground shaking from the U.S. financial quake, Beijing then put into rush status long-planned, Pharaoh-like public-sector works infrastructure investments to push the domestic economy forward and provide as many jobs as possible. While this bold 2009 move ran the risk of inserting bubbles into the Chinese economy that down the road might inevitably lose their pop, some Western financial figures applauded the ‘flash-flood stimulus.’ One was repentant Soros himself, who accepted that the 2008 “Bush Bubble” was nothing less than an economic existential threat, and told the Chinese their stimulus response was spot-on.
A Beijing shaken by the U.S. housing collapse greatly appreciated that support. But that was then, and this is now – so guess what? The other day Beijing unloaded on speculators who might have thoughts of wanting to “to bet on the ‘ultimate failure’ of the suddenly rocky Chinese economy, “ in the words of Xinhua, the giant Chinese news agency, which added: “Reckless speculations and vicious shorting will face higher trading costs and possibly severe legal consequences.”
Where did that outburst come from? It turns out that at the recent annual retreat in Davos, one famed Western figure airing the view that China is “doomed to a crash” was Mr Soros himself. While the old ‘shorting’ master is no longer active (and surely Xinhua must know this) in some eyes he remains the international icon (for all his commendable philanthropy) of sadistic currency and equity profiteering. Chimed in People’s Daily: “A Soros’ war on the renminbi and the Hong Kong dollar cannot possible succeed – about this there can be do doubt.”
These warnings are really directed generically rather than individually – at the global class of fast-buck investment jackals that care for no one’s welfare other than their own. It’s not hard to believe in the potential sting of the Xinhua threat. It’s also not hard to believe that Chinese officials won’t move to re-shelter its currency. Even some Western authorities won’t blame them for that. They know how predatory their own can be. Sometimes it is only common sense to get the heck out of the sandbox when the bullies in them are trying to pull off their shorts.
Columnist Tom Plate, the Distinguished Scholar of Asian and Pacific Studies at Loyola Marymount University in Los Angeles, is working on a book on President Xi Jinping.