Updated: Jul 31
In the midst of every crisis, lies great opportunity.
~ Albert Einstein
No system lasts for ever, particularly for empires.
All empires and organisations by nature swing between two distinct styles of management and leadership. Centralised to decentralised and then back and forth every few decades.
China moved from a highly centralised management approach to the Chinese economy to a highly decentralised one. The growth of China and its rise in prosperity has come from the private sector and hardly any from the government sector. This is because they gave up economic communism but retained political communism.
With the spectacular rise in economic prosperity comes the attendant challenge for rulers, the hunger for political freedom by the people. This will always be unacceptable to the [Communist Party of China (CPC), leadership.
By becoming the head of all key functions of the Chinese government, party and military, Premier Xi Jinping has now centralised more power in his hands than any other ruler in China's entire history.
Xi and his team, have been moving to reverse privatisation and centralise all economic power in the hands of Chinese government itself, while further tightening political control.
Chinese leadership has to perform a tightrope walk to balance continued economic growth while moving towards their intended goal of regaining greater government control and its centralisation of the Chinese economy.
Before the crisis, 80% of the shares of listed on Chinese stock market were held by local investors and 20% by foreigners. Amidst fears of trade war blues and COVID-19 Coronavirus panic the value of shares on Chines Stock markets had dropped dramatically, with many foreigners and bulk of local Chinese investors desperately selling their share holding.
A summary view of the China Shanghai Composite Stock Market Index shows that the index were at their highest in May 2007 at 6142 and again at 5159 in Jul 2015.
Under the guise of calming investor fears and help infuse liquidity into the market, Chinese government owned and supported entities bought up most of the entire stock holding at about 2500 levels.This action has resulted in almost all ownership of the stocks of the most profitable and high technology, listed companies falling into Chinese government's hands.
The Chinese leadership comprises many deviously brilliant people and groups, and one should never underestimate them nor consider any scheme beyond them.
The billion Yuan question is, did China deliberately seed panic over the Coronavirus COVID-19 outbreak by releasing videos showing people dying on the streets or locked indoors with their homes being welded shut? Or did the Chinese leadership long prepared for such an eventuality take advantage of the crisis?
Success takes place when preparation meets opportunity. Not only the stock market but significant equity stock of many technology companies, owned mainly by American, European, Japanese and Taiwanese companies have been bought out at very low prices by key CPC politburo members or by the government itself. Whether COVID-19 spread has been totally contained in China is uncertain. The price of lives is unimaginably high. However if one takes a cold look at the strategic and management lesson for profiting from a crisis this takeover of the Chinese private sector by the government is mind boggling.. All in all, the Chinese leadership has bought out an estimated US$ 2 trillion market for less than US$ 500 billion (25%), without firing a shot nor a political confrontation. It is a great loss for investors in China and a fantastic economic coup, by the Chinese leadership.