For anyone who hitched their wagon to China’s shooting economic star in the last year, I have three words for you: Look --- Out --- Below. Where opinion in the Free World is concerned, the People’s Republic has gone from guiding light of progress and global partnership to whistle in the darkness of scandal and disgrace.
Notice the timeline of descent:
- February 2006: “China, Friend Of The American Consumer” (The Record, NJ)
- April 2008: “The government of China is the enemy of all of us.” (Epoch Times, NY)
Ally to adversary, stardom to mar-dom, China’s reputation has come a long, wrong way round:
Then (2006): “China is the world’s foremost aspiring superpower” (Guardian) With an 11% gross domestic product, a record high trade surplus, and multi-million dollar deals with everyone from Boeing to Starbucks, “American business is now a part of the [PRC’s] social fabric.”
Now: “The risk of being tainted with association with Chinese policy has become a real issue for” U.S. companies. (Reuters) True Story: A sign in the window of a local Atlanta, Georgia scooter dealership has a circle with a line through the words “Made In China.”
Then: “Pundits are predicting that the 2008 Olympics will be the most spectacular in the history of the Games as it brings together the cultures of East and West under one banner in a city eager to reach out to the world.” (Times Online. October 2006)
Now: The Olympic Torch run descends into chaos as pro-Tibet protests bring the marathon to an abrupt stop. “The relay has turned into a political symbol, the damage to the image increasing with every kilometer,” and the prospect for Beijing ’08 going up in flames.(Spiegel Online)
With the WHAT firmly in place -- namely, the complete 180-degree turnaround of China’s image as “frenemy” to thug --
The next matter is WHY? That China doesn’t adhere to the apple pie politics of the United States of America is nothing new. Its politics remain that of a communist dictatorship, and has been since 1949. By definition, that means the government controls its people with near absolute power, throws its political opponents and outspoken journalists into jail, regulates its press, and censors its Internet.
(Recall: In order to set up house in China in 2006, Microsoft agreed to filter the word “democracy” out of its web searches.)
By the same token, China has been engaged in regular hostilities with Tibet since the Seventeen Point Agreement was signed in 1951.
Which leaves one possible catalyst for the turnaround in China’s image from reverence to scorn: the trend in mass social mood, as reflected in the performance of stock prices. BINGO: From the end of 2005 to October 2007, China’s Shanghai Composite Index soared 254% in an uninterrupted winning streak of unprecedented strength.
During this time, China was the chance beneficiary of a rising social mood and its manifestations: Alignment, supportiveness, togetherness, forbearance, and optimism.
Then, as social mood reversed course, feelings of goodwill dissolved into those of discord, opposition, anger, and pessimism. Likewise, on October 16, the Shanghai Composite turned DOWN in a sustained sell-off that has slashed 45% off its value thus far.
While no Elliott Wave analyst can predict the specific outcome of a change in social expression (for example, that on March 14, a violent pro-Tibet protest would erupt in Lhasa, leaving 140 dead by the month’s end), it IS entirely possible to foresee that unity will give way to unrest, and stock uptrends to slides -- as mood falls.
Case in point: One month before the October 16 high in the Shanghai Composite Index, the September 2007 Global Market Perspective went on high alert to the downward potential in China’s stock market. In GMP’s own words: “The following statistic suggests strongly that China’s peak cannot be far off.”
China’s fall from grace since then speaks to the spirit of social mood. As the April 2008 Global Market Perspective explains: “Contrarian investors should recognize the violence for what it is: an expression of a nadir in social mood that is compatible with” the pattern in stock prices.