HANSEN DISCUSSION - The Running CPI And Panic investment in China

Since last November, the rising percentage of China’s CPI (consumer price index) reached 1.9%. It was the highest rising percentage in the recent 20 months. In 2006’s December, the CPI rising percentage was 2.8%, almost reached the inflation line of 3%. With a couple of measurements, CPI seemed to be stable for the first six months in 2007. However, since this June, the rising rate of CPI speeded up again and reached 4.4% in June and 5.6% in July, the highest in the recent 10 years. The actual rising rate of China’s CPI, most of the scholars believe, is much higher than the reported data from government. Because the counting of China’s CPI only includes food, clothing, medicines, transportation and communication, entertainment, service, living fees(like electricity and water), these fees take up only very little of Chinese daily consumptions. Currently, most of Chinese citizens’ money goes to real estate and the rising of the price of house is out of imagination these two or three years (price of the houses and flat, in some part of Shanghai, is higher than the price of Tokyo, one of the most expensive places in the world), so if the counting of China’s CPI include personal housing consuming, the inflation rate of China will be much higher. But no matter what kind of CPI counting system we are using, inflation is happening China, this is without any doubt. The reasons for inflation, may be the huge amount of China’s foreign exchange reserve, may be the expectation from outside of appreciation of RMB (Chinese currency) against US dollar and may include the excessive liquidity of RMB. I will not discuss the reasons in this article but what citizens choose to do in the inflation.

In China’s history of inflation, people used to buy and store lot of “daily” things. Because before 1990s’, Angle modulus in China was very high, most of the money was spent on food, food related facilities and basic life necessities. Take the inflation in 1988 as an example, people withdrew their money from the bank and rushed to the shops and bought everything they could buy. Rich men at that time, bought televisions, fridges, washing machines, poor people bought rice, salt, matches. A colleague of my mom bought 10 rice-cookers at that time and she is still using them now. In a word, Chinese people used to buy things, esp. things for daily usage, as their way of protecting themselves from inflation. However, the Angle modulus reduced to less than 50% in 2006, which means that these daily used things are not very important and cannot take up a big percentage in a family’s spending, so no one will go to shops and buy 10 cookers these days as a way of keep their money valuable. What can Chinese do in order to protect ourselves from inflation?
How to prevent our money from depriciation? One thing is for sure, keep money in the bank is no longer a good idea, although People’s Bank (central bank of China) announced three times the interest’s increase in just 2 months, the interest is still below the increase of CPI, which means an actual depreciation if you continue keep your money in the bank. You may say that we can buy some “hard currencies” such as gold or precious gems, or as some rich men in China is doing, buy houses and lands to keep their treasures. But most of the people have too little money to do these things. At this time, the fast growing stock market—which was stimulated by the hot money from outside—become the best place for ordinary people to “protect” their money.

The investment of individuals to the stock market starts at the beginning of this year, the index of Shanghai Stock Market went up from 1000 points to 3000 points in just 2 months from January to March. Lots of scholars and experts made the comment that there must be foam in China’s stock market, and this bull would end by government’s policies and interventions like the one in 1997, before the return of Hong Kong. As expected, Chinese government has released several policies, like increasing the loan and deposit interests, in order to warn the investors. However, the zeal for stock market from Chinese was out of control. Those policies had no power at all and the index of Shanghai Stock Market went up to 4087 at the end of May in another 2 months without any proper adjustment. There are more than 500 billion RMB (around 65 billion US dollars) of tradings and 90 thousands of new investors entering the stock market everyday ever since February, 2007. If at the very beginning the hot stock market was stimulated by money from other countries because of their expectation for RMB rate to increase, the unusual shooting up in China’s stock market afterwards should be the result of pushing from individual investors: at the end of April, 2007, China’s residents deposit shrank more than 22 billion RMB. Stock market becomes the most popular topic for Chinese people. This zealous and irrational action of Chinese is called panic investment by the some scholars because all this investment was driven by the fear of turning poor after the inflation.

On 30th of May (5.30), government suddenly increased the Stamp Tax for Securities Trading (just two days before May, 30th, the representative of China Securities Regulatory Commission made the promise to all the investors that the government will not increase the stamp tax recently…), Shanghai stock market reacted to this policy by a continuous drop from 4087 to 3670 in just 4 days until 4th of June. There were more than 800 stocks reached the Limit Down. The incident of 530 was a warning from government to the individual investors and also a measurement to cool down the over-heated stock market. Out of government’s expectation, after 5.30, the index of Shanghai Stock Market went on the way of shooting up. The currently index is around 5200. (Another increase of 1000 points in 2 months.) The only change after the incident of 530 is lots of people who directly invest in stock market turn to Funds.

But most of the funds now invest highly on stock market. During this two or three months, most of the scholars turn to be quiet comparing with their active comment at the beginning of 2007, because no one can predict if the China stock market will collapse and when will it collapse. All the citizens are enjoying the benefit brought out by the shooting stock market and there are more and more people jump into this pool. Especially facing the opening of 17th National Meeting of China Communist Party, the most important event deciding the future development of China, and the opening of 2008 Olympics, citizens have the strong belief that even the stock market will collapse, Chinese government will save it. I think the government is facing a big problem: on one hand, government wants to keep the society stable; on the other hand, stock market should perform according to the market, so the government does not want to interfere with it directly. But there are so many people involved the stock market and the whole society is staring at it, if the stock market collapsed, there will certainly be instability.

Although stock market provides a possibility of catching up the running speed of CPI, the investment is not releasing our panic, we have to pay the returning of worrying about the stock market. Actually, many of Fudan students put some money in stock market or funds market, most of we are not expecting earning more money or become wealthy, but just want to be able to pay our tuition fee one or two years later, instead of the problems in the future, we are now worrying about the unpredictable trend of stock market. I am wondering if there is a strong and stable system of social welfare, if we are confident about our future living standard, there will still be such a zeal for investment. In my opinion, it is more accurate to say the instability of China’s economy and people’s future, rather than the inflation itself, drive us into the panic investment.

Hansen Report - LEWIS KASINDI (Africa)

SPECIAL THANKS & A WORD OF APPRECIATION TO Mr. LEWIS KASINDI WHO HAD CONTRIBUTED THIS ARTICLE. HE WAS SELECTED TO ATTEND THE INAGURAL HANSEN SUMMER INSTITUTE, BUT DUE TO UNFORTUNATE SITUATIONS HE COULD NOT TAKE PART IN THE PROGRAM. WE MISSED A FRIEND FROM AFRICA THROUGH OUT THE PROGRAM.

Best regards to all of the Hansenian fellows. I wish I met all of you guys on the inaugural HSI program but…! Anyways, hope to meet you some day in the future.

Thanks a lot for this opportunity the Hansenian team offers me to say a word on the conflict situation in Africa as well as in my region, (The African Great Lake Region).

Recent years have seen many regions of Africa involved in war and internal or external conflict, from the seven or so countries directly involved in the Democratic Republic of Congo (DRC) to the Sierra Leone crisis and the war in Ethiopia/Eritrea and the various other civil wars.

There have been over 9.5 million refugees and hundreds and thousands of people have been slaughtered in Africa from these conflicts. If this scale of destruction and fighting were in Europe, then people would be calling it World War III with the entire world rushing to report, provide aid, mediate and otherwise try to diffuse the situation.

According to me, the major root cause of conflicts in the whole African continent is the legacy of European colonialism that had a devastating impact on Africa. The artificial boundaries created by colonial rulers as they ruled and finally left Africa had the effect of bringing together many different ethnic people within a nation that did not reflect, nor have (in such a short period of time) the ability to accommodate or provide for, the cultural and ethnic diversity. The natural struggle to rebuild is proving difficult.

Some have commented that pointing to colonialism is not an excuse as many African countries have had decades to try and resolve this. The implication of the argument is that the effects of centuries of colonialism, in effect, are supposed to be overcome in just a few short years. Yet, as Richard Robbins, professor of anthropology suggests, if countries like Canada have been struggling with accommodating different groups, then in Africa the problem is more complex:
We must remember that the European agreements that had carved up Africa into states paid little attention to cultural and ethnic boundaries and ethnic groups had little opportunity or need to form political alliances or accommodations under repressive colonial rule.… Think of countries such as Canada again, which has been trying for hundreds of years with mixed success to accommodate only two linguistic groups — English and French — and you get an idea of the problems of African states with far greater cultural and linguistic divisions.

(My country, the DRC has four official languages and over 430 dialects; I know for sure this is a source of many conflicts inside the country.)

The African Great Lakes Region has experienced prolonged instability, thus lack of peace and justice for quite some time. This is now engulfed in a war that has drawn in other countries for a number of complex reasons, including conflicts over basic resources such as water, access and control over rich minerals and other resources as well as various political agendas. This has been fueled and supported by various national and international corporations and other regimes which have an interest in the outcome of the conflict.

Since April 1994, the DRC has been rent by ethnic civil war, touched off by a massive inflow of Rwandan refugees fleeing the genocide. These refugees were a mix of civilians, Interahamwe (the militia largely held responsible for the genocide and members of the defeated Rwandan army [FAR]). The refugee camps quickly became controlled by the Interahamwe and FAR. Over the next few years, these groups (with the blessing of Mobutu’s central government and regional strongmen) reorganized and rearmed. Soon they began launching attacks from the camps into neighboring Rwanda and Uganda.

This is why the Rwandan and Ugandan regimes began looking for a Congolese face to put on their intervention into Mobutu’s Zaire in order to aim at delivering what they hoped would be a deathblow to their respective rebels buy cutting off their supply lines, driving them out of their Zairian rear bases and ousting their longtime benefactor, Mobutu.

When Laurent Kabila came to power in May 1997, toppling Marshall Mobutu, with the aid of Rwanda, Uganda, Angola, Burundi and Eritrea, it was hoped that there was going to be peace and stability in the region.

In stead, these hopes were quickly dashed when the situation deteriorated. Kabila had been accused by rebels (made up of Congolese soldiers, Congolese Tutsi Banyamulenge, Rwandan, Ugandan and some Burundian government troops) of turning into a dictator, of mismanagement, corruption and supporting various paramilitary groups who oppose his former allies.

Since the second outbreak of fighting in August 1998, at least 3.3 million people, mostly women, children and the elderly, are estimated to have died because of the conflict, most from disease and starvation. More than 2.25 million people have been driven from their homes; many of them beyond the reach of humanitarian agencies
The main fighting has been on the eastern side of DRC and over three quarters of the estimated number of killings have taken place there, with approximately 90 per cent of the DRC’s internally displaced population having fled violence from that region.
This was the beginning of a terrible hatred between eastern Congo’s population and all the countries involved in the rebellion. Almost each family was victim of this conflict by having lost at least a member.

That’s why in North and South Kivu Provinces, the many people terribly hate Congolese Tutsi Banyamulenge and all Rwandan people (especially Interahamwe militia who are still carrying out most of massacres in South Kivu Province). They are accused of being responsible for the havoc in the mentioned provinces. In Province Orientale (Bunia, Ituri, etc.) many people are hostile to Ugandans, also held responsible for many crimes committed there.

The hard task we have in order to cope with this dangerous situation is to keep the new generations out of it.

For this aim, I recently created a youth Association named « League de la Jeunesse pour la Paix et le Développement dans la Région des Grands Lacs ». It’s dealing with peace and reconciliation in different Countries of the region.

This association has already some members in Kigali/Rwanda and Bujumbura/Burundi. My vision is to spread it over the whole region (DRC, Rwanda, Burundi, Uganda and Tanzania) in order to have all the youth of the respective countries participate actively in the reconciliation, peace and development of the Region for a more peaceful future.

Is there any Hansenian who can suggest another way to keep future generations out of this situation for the more peaceful African Great Lakes Region?

Thanks you, guys!