Sideways: China can learn from Goldman
China’s struggle to communicate effectively with markets was demonstrated by its scapegoating of journalists for supposedly worsening the crash in local stock prices.
As so often in matters financial and reputational, China could take a lesson from the Goldman Sachs playbook.
Chinese state news agency Xinhua recently announced that almost 200 people had been punished for rumour mongering, while a reporter for a business magazine made a televised confession to causing panic and disorder in the market.
“I acquired the news from private conversations, which is an abnormal way, and added my personal and subjective views to finish this story,” reporter Wang Xiaolu said. Unsurprisingly, this move to shoot the messenger did nothing to help Chinese stock prices mount a recovery or bolster confidence that local authorities grasp the nature of their communications problems.
Chinese media had reportedly been told as early as June to avoid the use of emotionally charged words such as slump, spike and collapse.
China is not alone in trying to bend markets to its will, or hoping that the use of euphemisms will cushion the blow of a market disruption.
When sterling was forced out of the European exchange rate mechanism on September 17 1992 – Black Wednesday for the UK government of the day – officials at the Bank of England stubbornly refused to use the D-word (devaluation). Markets were chaotic; interest rates rose from 10% to 12% then on to 15% before the Conservative government gave up and allowed a slide in sterling of 15% against the deutschemark and 25% against the dollar.
The Bank of England, which was not independent from the government at the time, nevertheless maintained a facade of insisting that there had simply been a widening of sterling’s trading bands or at worst a revaluation (not a devaluation). This linguistic contortion was reminiscent of a previous sterling devaluation in 1967 when Labour prime minister Harold Wilson said that the “pound in your pocket” would not change value within Britain.
Chinese authorities have a reputation for taking the long view, as is demonstrated by a disputed quote attributed to former premier Zhou Enlai, who supposedly replied to a question in the 1970s about the success of the 1789 French revolution by saying that it was “too soon to tell”.
But they can look to recent history for examples of how to affect market sentiment. Mario Draghi, the suave president of the European Central Bank, provided the most effective intervention in decades with his 2012 pledge to do “whatever it takes” to save the euro. This worked so well that three years later, with global equity markets teetering on the edge of panic and European economic growth still stagnant, 10-year government bond yields for Draghi’s homeland of Italy are the same as those on US Treasuries.
Draghi spent time working for Goldman Sachs, which is another possible role model for China as it looks for ways to convince markets that slow is the new fast.
Goldman recently generated positive media coverage for a supposed move to provide its ‘secret sauce’ of trading and risk management software to clients via online apps. Former Goldman equities co-head Marty Chavez (now rebranded Silicon Valley-style as chief information officer) was quoted as saying: “Is this software better for clients and the planet if it’s inside Goldman? Or is it better if we extend the platform to clients, or in some cases does a spin-out into open source or a company make more sense?”
This is an attempt at a Jedi mind trick on an epic scale by Goldman, given its long-standing reputation for hiding its real trading goals from clients and its persecution of a former employee for use of bank software that he helped to develop and viewed as essentially open source.
But Goldman can only be commended for its move to turn a perceived weakness into a strength. And surely a Goldman staffer somewhere out there is making a discreet pitch to Chinese authorities on how to address their market woes.