Macroscope Viewpoint: The Dangerous Allure of Equity Cult for Chinese Policymakers – A Bubble’s Boon or Bane?

Macroscope | Chinese decision-makers need to be wary of the equity cult

Depending on a surge in the stock market to rapidly generate economic growth may seem appealing, but this strategy rarely concludes successfully.

Is there a risk that significant Asian stock markets, similar to their Western counterparts, may transition from supporting to controlling their economies? This issue has recently been highlighted in China and Japan, as their markets have begun to significantly influence policy, potentially leading to widespread implications.

It appears that the allure for administrations, regardless of whether they operate within regulated, free-market, or mixed-market economies, to enhance share values is on the rise due to the immediate economic expansion it promises. However, this practice is habit-forming and usually results in pulling potential growth from future periods.

This strategy may be particularly risky for China and, to a somewhat lesser degree, Japan. Succumbing to the appeal of a market economy might allow for planned growth, but it could also lead to inevitable downturns.