As China struggles economically while still holding massive foreign reserves, market volatility reveals structural vulnerabilities. Careful analysis is healthier than listening to sensationalist media commentary.

2016-02-10

Observing recent market movements that are obvious even to the untrained eye, I am struck by one fact: although the Chinese government is clearly struggling, it still possesses enormous foreign currency reserves.

For example, assuming certain weekly magazine reports are accurate, China appears to be attempting to curb the so-called “explosive buying” by Chinese tourists in Japan as part of efforts to prevent capital flight.

However, the essence of this phenomenon lies in Chinese society itself.

As the FT recently reported, nearly 50 percent of products circulating online in China are counterfeit—an utterly unimaginable reality for Japanese people.

This reality perfectly confirms what Tadao Umesao, one of Japan’s greatest scholars and geniuses, described as China being a nation of “bottomless evil” and “plausible lies.”

Now, assuming that China’s one-party dictatorship is not simply sitting idle, “playing the flute while no one dances,” the current global market turbulence becomes instantly comprehensible.

China’s economy is undeniably in distress.

Suppose, at such a moment, the leadership decided to drag the rest of the world down with it. After all, this is a country that openly conducts state-sponsored cyberattacks, attempting to steal top-level secrets from Japan and the United States.

By leveraging its vast foreign currency holdings, primarily dollar-denominated assets, China could aggressively sell in major capitalist stock markets.

In particular, it would choose the Tokyo Stock Exchange as a primary battlefield due to its high liquidity and perceived safety.

As I have repeatedly pointed out, Japan’s elite—raised on Asahi Shimbun and dismissive of equity markets—allowed the TSE to become a market where roughly 70 percent of daily trading volume is controlled by foreign capital.

In other words, it is a market that can be manipulated almost at will by external forces.

Japan’s market is so simple that even a kindergarten child could understand how to move it: push the yen higher through currency futures, and Japanese stocks fall; move currencies up, push equities down.

By deploying only a fraction of its foreign reserves, China could not only reap massive profits, but also tighten the purse strings of Chinese tourists in Japan through sudden yen appreciation.

Compared to listening to the malicious reporting of TV Asahi and the equally malicious commentary of figures like Makabe—former financial institution employees heavily promoted by the network—it goes without saying how much healthier it is to listen to my analysis.