This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

New Experiment in China: Perestroika?

NEW YORK ( BBH FX Strategy) -- The immediate focus on China is the possibility of another reduction in the required reserves. China has announced that this weekend (Saturday and Sunday) will be working days and that Monday through Wednesday next week are official holidays. This, coupled with the continued slide in the Chinese stock market (Shanghai Composite is off nearly 10% since March 14) and the largest injection in the money market in two months Thursday have fanned speculation for some more relaxation of financial conditions.

Follow TheStreet on Twitter and become a fan on Facebook.

There is also a larger story unfolding. One of the characteristics of China's developmental strategy has been for it to experiment locally before scaling up those that succeed, like special economic zones.

This is similar to what the U.S. did during the New Deal. Roosevelt "nationalized" the successful "experiments" that were implemented on state and local levels. The controversial national health care seemed modeled on a state "experiment."

In a development pregnant with potential, Wednesday China's State Council (functioning like a cabinet) authorized the city of Wenzhou to "experiment" with financial liberalization. According to reports, private investors will be allowed to buy into local banks, establish loan companies and rural community banks. It may allow residents to make direct investments overseas and explore other ways to liberalize the capital account.

While this is promising, caution is still the better part of valor. Last year, the Wenzhou government issued rules allowing residents to invest overseas, but within weeks the plan was scrapped by SAFE, the State Administration of Foreign Exchange. Both Chinese investors who want to invest in foreign markets and foreign investors who want to invest in China will be closely monitoring these developments.

This may be one of the last economic reforms driven by Premier Wen Jiabao. In terms of the balance-of-power between the princelings and Communist Youth League, this is a success for the latter. While the economy is poised to slow, there is also greater uncertainty that the new configuration of government will be as strong advocates of economic reform as the current one.

One question that investors ask is what kind of foreign assets could the residents of Wenzhou be looking to acquire. A way to explore the possibilities is to consider their knowledge set, by looking at Wenzhou's current industries. Wenzhou produces 90% of China's eyeglasses and exported lighters, according to Bloomberg. It also exports timber, paper and alunite. Its main industries include electrical machinery, leather products and plastic manufacturing.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs