But over the past few months, the government\u2019s blundering attempts tocontrol the stock market<\/a> and the currency<\/a> have finally shaken investors\u2019 confidence in Beijing\u2019s assurances that the economy is sound. At the World Economic Forum in Davos last month, hedge fund manager George Soros warned that China faces a \u201chard landing,\u201d while IMF head Christine Lagarde said China\u2019s \u201ccommunication issues<\/a>\u201d are upsetting markets.<\/p>\n With its good-news machine hitting a wall, the government is resorting to increasingly desperate and aggressive measures to fix things\u2014and instead making them worse.<\/p>\n How Beijing lost the plot of \u201cthe Chinese story\u201d<\/strong><\/p>\n China\u2019s government notoriously runs the most effective propaganda operation in the world. It controls information inside China so effectively that most local university students don\u2019t know the Tiananmen uprising happened<\/a>, and think the country\u2019s territorial claims in the South China Sea derive from ancient history<\/a>, not from 1947.<\/p>\n Under president Xi Jinping, China\u2019s external propaganda machine, too, has taken on \u201ca new level of assertiveness, confidence, and ambition,\u201d as Anne-Marie Brady<\/a>, an expert on Chinese propaganda, wrote in a report<\/a> published in October last year. Three key themes, \u201ctell a good Chinese story,\u201d the \u201cChinese Dream,\u201d and \u201crich country, strong military,\u201d burnished the idea outside China in recent years that this is indeed \u201cChina\u2019s Century.<\/a>\u201d<\/p>\n But that tightly controlled message fell apart this past summer, and has never recovered since.<\/p>\n First, China\u2019s stock markets dropped sharply in June. Beijing stepped in with over $1 trillion of stimulus to prop them up\u2014an attempt to control the very markets<\/a> that Xi had promised to liberalize. Even though there\u2019s little foreign money invested in China\u2019s stock markets, their apparent fragility, and Beijing\u2019s reaction, sent world markets tumbling.<\/p>\n Then in August, when Beijing unexpectedly devalued the yuan<\/a> by more than it had in 20 years, global markets\u2014used to the deliberate guidance of the US Federal Reserve and the European Central Bank\u2014plunged again<\/a>.<\/p>\n Finally, at the start of this year<\/a>, China\u2019s markets wobbled<\/a> and the central bank stepped in once more to weaken the yuan without warning.<\/p>\n Foreign investors have been left to decipher what\u2019s going on in China by parsing reports from a censored press, opaque information from state-owned enterprises, and what little information comes from officials who don\u2019t really speak to analysts, journalists, or the general public. This isn\u2019t exactly filling them with confidence.<\/p>\n At Davos, Fang Xinghai, vice chairman of China\u2019s security regulator, appeared to agree with Lagarde about China\u2019s \u201ccommunication issues,\u201d admitting that \u201cour system isn\u2019t structured in a way that\u2019s able to communicate seamlessly with the market.\u201d<\/p>\n Days earlier, Fang\u2019s boss, Xiao Gang, had told his colleagues<\/a> that China\u2019s stock market problems stemmed from \u201can immature market, inexperienced investors, an imperfect trading system, and inappropriate supervision mechanisms.\u201d <\/p>\n Soon after,according to a Reuters report, he offered to resign. The report was then refuted by Chinese officials, who promptly shut down Reuters\u2019 social media account in China\u2014giving it even more credibility.<\/p>\n If you bully them, will they invest?<\/strong><\/p>\n In the face of rising criticism and doubts, Chinese officials and media outlets have dropped their assertive, confident overseas propaganda for a brittle, shrill, and sometimes clueless approach. Rather than reassuring investors around the world that regulators are listening to critics, Beijing seems to be trying to browbeat them instead.<\/p>\n \u201cReckless speculations and vicious shorting will face higher trading costs and possibly severe legal consequences,\u201d Xinhua warned<\/a> on Jan. 25. Critics of China\u2019s economic policies \u201ceither haven\u2019t done their homework\u201d or are deliberately trying to stir up panic, state newswireXinhua wrote<\/a> last week. On Feb. 3, Xinhua called<\/a> naysayers \u201cjealous\u201d and said the biggest problem China faces is negative sentiment.<\/p>\n China\u2019s premier, Li Keqiang, meanwhile, sounds so out of touch that it beggars belief. \u201cIn recent days, there have been many international voices \u2018shorting\u2019 the Chinese economy. Some have even claimed that China\u2019s slowdown is affecting the global economy\u2014how absurd,\u201d Li said on Jan. 27, according to remarks quoted in the South China Morning Post<\/a> (paywall).<\/p>\n What\u2019s absurd is for the top economic official in the world\u2019s second-largest economy, its top exporter, and the biggest consumer of many key commodities to disavow any link with the global economy.<\/p>\n Spooked investors aren\u2019t hanging around to see whether officials can get their story straight. An estimated $676 billion<\/a> in capital fled China last year, most of it at the end of the year. This accounted for the bulk of of the $735 billion in capital that was yanked out of emerging markets<\/a>in 2015.<\/p>\n Trying to scare China bears off with heavy-handed statements is \u201cobviously not\u201d working, Li-Gang Liu, ANZ\u2019s Greater China chief economist, told Quartz. At the moment, foreign institutional fund managers have almost \u201czero\u201d of their funds allocated to China, which is ridiculous considering it is the world\u2019s second-largest economy, Liu said.<\/p>\n It\u2019s also having a similar effect on domestic investors. \u201cThe more that they make such statements, the more ordinary people in China interpret it the other way,\u201d Liu said.<\/p>\n The constant and overbearing attempts to browbeat investors into believing in China\u2019s economic strengths \u201cis not useful and could be counterproductive,\u201d he said.<\/p>\n Big bets against China are rising<\/strong><\/p>\n Indeed, investors think the yuan will weaken further. Futures contracts allow them to bet at what rate the Hong Kong-traded \u201coffshore yuan\u201d (which was introduced by Beijing as a way to internationalize its currency) will be trading against the US dollar months or years from now. The contract for March next year suggests investors think it will be at 7.02 yuan to the US dollar as of Feb. 3, around 5% lower than it is today.<\/p>\n And they\u2019re piling into that bet. Open interest, or the number of contracts written on that dollar\/yuan bet, have increased<\/a> from a few dozen in mid-November to more than 5,700 at the end of last month.<\/p>\n China\u2019s central bank has spent $321 billion to prop up the currency since August, with little effect<\/a>. Ultimately, Beijing \u201ccan make it difficult to short the yuan, but it cannot stop it completely,\u201d Francis Cheung, China-Hong Kong Strategist at CLSA told Quartz.<\/p>\n Several big US hedge funds are now openly shorting the currency,according to the Wall Street Journal<\/a> (paywall). Hayman Capital Management\u2019s Kyle Bass said the amount of money staked on the yuan\u2019s coming drop could be \u201cmuch larger than the [US] subprime crisis.\u201d<\/p>\n \u201cChild-like and evil\u201d<\/strong><\/p>\n Compounding its clumsy economic communications, Beijing is stepping up an increasingly brutal, unabashedly public global campaign against critics of the Communist party. Investors have generally looked past China\u2019s periodic crackdowns on free speech and other human rights<\/a>under Xi, but its most recent efforts, which may violate international law, are harder to ignore.<\/p>\n Beijing is believed to have abducted several Hong Kong booksellers<\/a>, and forced the public \u201cconfessions\u201d<\/a> of two Swedish citizens on Chinese television and the ejection of one from China<\/a>. The government is also believed to be behind two Chinese citizens being \u201cdisappeared\u201d from Thailand<\/a>. Meanwhile, as Taiwan went to the polls last month, China\u2019s state media celebrated a Taiwanese teen\u2019s tearful televised apology<\/a> for waving Taiwan\u2019s flag\u2014possibly tipping an already anti-Beijing election even more against the mainland.<\/p>\n The overall impression, as caustic China-watcher Big Lychee wrote<\/a> on Jan. 18, is \u201cthat China\u2019s leaders and political system are simultaneously both child-like and evil.\u201d This is a combination that, much like the character of Regan in The Exorcist,<\/em> \u201cmanages to be creepier than any other type of sinister.\u201d<\/p>\n The US State Department has weighed in twice on the bookseller cases,saying most recently<\/a> that the incidents \u201craise serious questions about China\u2019s commitment to Hong Kong\u2019s autonomy under the \u2018one country, two systems\u2019 framework as well as its respect for the protection of universal human rights and fundamental freedoms.\u201d<\/p>\n![](\"http:\/\/docs.uyghuramerican.org\/images\/china-stock.jpg\")
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