rrivera@ufm.edu<\/a><\/p>\n <\/p>\n
The yuan\u2019s devaluation against the dollar, the stock markets tumultuous start of the year, and unexpected reactions to new regulations from central authorities: this stumbling of the world\u2019s second largest economy has not sat well with Xi Jinping, who already expressed dissatisfaction with how China\u2019s Securities Regulatory Commission handled last year\u2019s crisis. The stock market\u2019s dismal start in 2016, along with the debut and suspending of the \u201ccircuit breaker\u201d system, cost Xiao Gang his job\u2014the very same man who designed it and who, until last week, was the Director of China\u2019s Securities Regulatory Commission.<\/p>\n
This change is important because it is part of a series of strategic movements the government is using to clean the Chinese economy. The last year has been tough for the Chinese economy, and has proved crucial for the central authorities\u2019 decision: to leave the model of cheap exports and investments in infrastructure and head towards an economy directed by consumption and exposed to market forces. Through its spokesman, the Chinese Central Bank manifested its intention to increase consumption, and yet maintain precaution to not over expand credit. The changes seem to be a restructuring aiming to gradually end credit flow to zombie industries, in order to close factories that add to the already-installed overcapacity and to guide credit towards consumption and the service sector.<\/p>\n
As a solution to the real estate clot in the arteries of the Chinese economy, the Central Bank reduced credit expansion. Furthermore, it reduced the bank\u2019s reserve rate to previous levels, due to the banking system\u2019s inefficiency to take credit to marginal sectors of the economy. However, the government adopted a new strategy to reduce taxes on real estate purchase. However, at the same time, it announced a cut in the credit flow to zombie industries, which include real estate development companies. This reminds us that while China\u2019s housing bubble proved to be another \u201ccry wolf\u201d call, it is a matter that constantly remains in the horizon of regulators.<\/p>\n
The 2015 crisis, the yuan\u2019s devaluation, and the failure of the stock markets\u2019 circuit breaker system in 2016, can only be explained as the result of the adjustment of market forces. The high level of control and interventionism by the Chinese government can, and should be, criticized, but it is indisputable that it is the same control and direction that led China to be more exposed to the open market. The new awakening of China is a difficult process that will need strong political leadership. Without a doubt, new reforms will come before dust settles on the previous ones.<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
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