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Anywhere else, the trust that underpins the financial system—the trust between the public and banks, and among the banks themselves—would have eroded long ago. But in China, financial stability is based not on the relative health and good management of the banks but on the widely held belief that the government will always intervene whenever necessary to ensure the stability of the system, a belief based on Beijing repeatedly doing just that. In most economies, government intervention is typically limited to changing interest rates and printing money. Beijing, however, is far more expansive in its use of state power. When the stock market collapsed in 2015, Beijing stepped in, deploying all the various powers at its disposal to stop the rout. It mobilized a group of large state-owned firms—what became known as “the national team”—to buy up huge volumes of shares, and they set themselves up as buyers of last resort. Ultimately, they spent about 1.5 trillion yuan to stop share prices from falling any further. Fund managers were pressured to only buy stock and not sell. Television and radio stations were instructed to soft-pedal their coverage and to avoid using harsh words like “slump” or “collapse.” People were arrested for “spreading rumors” relating to the stock market. When Caijing, one of China’s premier financial magazines, reported that the national team was planning on winding up its intervention, the journalist who wrote the story was arrested and, while still in custody, made a televised apology. “I shouldn’t have released a report with a major negative impact on the market at such a sensitive time,” he said. “I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss.” Therein lies China’s strength. No one questions Beijing’s commitment to maintaining stability. Beijing’s willingness to use all the tools at its disposal—whether telling state firms to buy shares, or molding public opinion—has traditionally made the prospect of China’s experiencing a financial crisis seem fanciful. But this is also China’s Achilles’ heel. With financial institutions safe in the knowledge that Beijing is providing a safety net, the system has grown bigger, more complex, and riskier. Moreover, and more disturbing, sometimes Beijing does lose control.
China's Great Wall of Debt
Dinny McMahon
Create something timeless.
The more evergreen your work, the longer timeline you have to find success.
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@JamesClear on Twitter
Another important function of undesirable metrics is that they can be used as guardrails, alerting us when desirable metrics are having too much sway. Former Intel CEO Andy Grove, a metrics pioneer whose approach to quantifying performance influenced a generation of Silicon Valley leaders, believed that every metric has the potential to backfire. Grove is credited with introducing a crucial imperative: “For every metric, there should be another ‘paired’ metric that addresses the adverse consequences of the first metric.”
Decoding Greatness
Ron Friedman
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