The Confidence Game

The Confidence Game

If you own stocks, anywhere in the world, there’s a good chance that the markets’ wild ride this week upset your stomach. But, worried as you were, you probably felt some confidence that the US and European economies are relatively stable, that governments in those places know what they’re doing and are relatively transparent about it, and that markets would recover.


Now consider a day in the (not-so-distant) future when a market meltdown begins not on Wall Street but in China. Imagine further that when that day comes, China is the largest economy on earth (by some measures, it already is). Will you be as confident in China’s leadership and markets are you are in the US and Europe’s?

A few thoughts:

1. In China, all the big political and economic decisions are made behind closed doors by seven men — the Politburo Standing Committee. No one alive today has ever lived in a world where the largest economy on earth was governed in such secrecy.

2. Last week’s stock market rollercoaster started in part because of expectations that the US Federal Reserve will soon raise interest rates to keep the economy from overheating. Investors don’t like higher interest rates, but they know how the Fed works and what it wants to achieve. The Fed has a responsibility to explain its decisions. Imagine the uncertainty when investors are instead hanging on the words of China’s central bank, where decisions must be approved by politicians who feel no need to explain their actions.

3. Starting this year, Chinese stocks are included in the MSCI EM index, one of the largest indices of stocks from “emerging market” economies. Because many American pension funds hold the MSCI EM Index, they — and maybe you — now have direct exposure to China’s domestic stock market for the first time, even if you’re not aware of it.

4. Today, China’s economy appears strong, but many analysts say economic statistics produced in that country are more vulnerable to political manipulation, particularly at the local level, than stats from countries like the US, Germany, or Japan. In fact, several Chinese provincial governments admitted recently that they faked their GDP data for 2016. Investors shrugged off this news because they’re confident in smooth sailing for China’s economy. But what happens when the waters get choppy and investors get queasy?

5. Investors know that, in a crisis, China’s leaders will worry about political stability first and the credibility of state-generated information a distant second. So even if China produces accurate info, will panicky investors believe it? How long will it take for confidence to be restored?

Confidence is the fuel that powers economies forward — at the local, national, and global levels. Today, China and its economic engine inspire confidence. That may no longer be true on the day when real trouble shakes an economy governed by secretive leaders who care more about political survival than the credibility of the information they share with the world.

That day is coming.

Colorful graphic with a woman wearing a red top in the foreground and blue background with two individuals looking on

As the private sector innovates aid and financing, seeking holistic solutions to neighborhood challenges is the cornerstone of the approach.

Businesses, which rely on healthy communities for their own prosperity, must play a big part in driving solutions.

See why.

Australian Open - First Round - Melbourne Park, Melbourne, Australia - January 21, 2020 China's Peng Shuai in action during the match against Japan's Nao Hibino

The Women’s Tennis Association this week decided to suspend all tournaments in China, over doubts that the country’s star player Peng Shuai is safe and sound. Peng recently disappeared for three weeks after accusing a former Vice Premier of sexual assault. Although she has since resurfaced, telling the International Olympic Committee that she’s fine and just wants a little privacy, there are still concerns that Peng has been subjected to intimidation by the Chinese state.

More Show less

Marietje Schaake, International Policy Director at Stanford's Cyber Policy Center, Eurasia Group senior advisor and former MEP, discusses trends in big tech, privacy protection and cyberspace:

What are the DSA and the DMA?

Well, the twin legislative initiatives of the Digital Services Act and the Digital Markets Act are the European Union's answer to the challenges of content moderation online and that of the significant role of major market players, also known as gatekeepers in the digital markets. And the intention is to foster both more competition and responsible behavior by tech companies. So the new rules would apply broadly to search engines, social media platforms, but also retail platforms and app stores.

More Show less

Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, shares insights on US politics:

What is happening to Roe v. Wade?

Well, this week, the Supreme Court heard arguments in a case called Dobbs v. Jackson, which challenges a Mississippi law that would outlaw abortions after 15 weeks in the state. That law itself is a direct challenge to the legal precedent set by Roe v. Wade nearly 50 years ago, which is one of the most politically important Supreme Court decisions in American history. It has driven deep polarization between the right and the left in the US and become a critical litmus test. There are very few, if any, pro-life Democrats at the national level and virtually no pro-choice Republicans at any level of government. Overturning Roe has been an animating force on the political right in the US for a generation. And in turn, Democrats have responded by making protecting Roe one of their key political missions.

More Show less
What We're Watching: Angela Merkel's punk rock farewell, Iran nuclear talks resume

Angela Merkel's punk rock farewell. Although she doesn't officially step down as German Chancellor until next week, Angela Merkel's sendoff took place on Thursday night in Berlin, with the traditional Grosser Zapfenstreich — a musical aufweidersehen, replete with torches and a military band. By custom, the honoree gets to choose three songs for the band to play. Among Merkel's otherwise staid choices was a total curveball: You Forgot the Colour Film, a 1974 rock hit by fellow East German Nina Hagen, a renowned punk rocker. The song, a parody bit about a man who takes the singer on vacation but has only black-and-white film in his camera, was understood as a dig at the drabness of life in the East. We're listening to the tune, and... digging it, kind of — but we still prefer Merkel's own Kraftwerk-inspired farewell song from Puppet Regime. Eins, zwei, drei, it's time to say goodbye...

More Show less
World leaders at the G20 Summit in Rome, October 2021

This week, the World Health Organization’s governing body agreed to begin multinational negotiations on an agreement that would boost global preparedness to deal with future pandemics. The WHO hopes that its 194 member countries will sign a treaty that helps ensure that the global response to the next pandemic is better coordinated and fairer.

The specifics remain to be negotiated over the coming months – and maybe longer – but the stated goal of those who back this plan is a treaty that will commit member countries to share information, virus samples, and new technologies, and to ensure that poorer countries have much better access than they do now to vaccines and related technologies.

Crucially, backers of the treaty insist it must be “legally binding.”

More Show less
Abortion rights and anti-abortion demonstrators hold signs outside the U.S. Supreme Court while the court holds a hearing on a Mississippi abortion ban, in Washington, D.C., on Wednesday, December 1, 2021.

On Wednesday the Supreme Court began hearing arguments on an issue that has had Americans fighting — and in some cases killing — each other for 50 years: abortion.

The court must decide whether a recent Mississippi state law that prohibits abortion after 15 weeks of pregnancy is legal and, more broadly, whether it runs counter to the Roe v Wade Supreme Court decision of 1973.

More Show less
Coronavirus in Deutschland - Covid-19-Dashboard des Robert Koch-Institut 01.12.2021:

67,186: Germany announced Thursday that people who remain unvaccinated against COVID-19 will be subject to new restrictions, including being unable to enter stores and gather in large groups. This comes as Germany recorded 67,186 new cases Thursday, hundreds more than the previous day, according to the Robert Koch Institute. Hospitals are filling up and Chancellor-designate Olaf Scholz, who comes into office next week, says he would support broad vaccine mandates.

More Show less

Subscribe to GZERO Media's newsletter, Signal

GZEROMEDIA

Subscribe to GZERO Media's newsletter: Signal

A GZERO pandemic

Signal

GZEROMEDIA

Subscribe to GZERO Media's newsletter: Signal