NEW YORK (TheStreet) -- China is still trying to figure out how to be a member of the market community.
The slow down in economic growth, the stock market collapse, the devaluation of the yuan, and all the turmoil that surrounds these and other events -- how should china react now that it exerts real power in the worldwide economy?
This, for China, is an experience at growing up.
Since the 1990s, China has been moving to open up its economy and make it more market orientated. While it's an open question as to the true intentions of China's ruling communist party, I believe China really wants to become more market orientated. Its leaders believe that this is necessary to really be a world power in the twenty-first century.
However, party leaders have not wanted to lose control of the Chinese people and Chinese society in the process. What happened in Russia as the Russians opened up in the late twentieth century was a warning sign to them. Hence, Chinese leaders have moved, but moved slowly.
This is important to remember because the time horizon of the Chinese leader is much longer than that of the leaders of the western world. The Chinese think in terms of decades, while we in the west think in terms of two or three years.
Chinese policy is constructed from a continuum between absolute control of the society and economy at one end and a open, free-market economy at the other end. The Chinese have tended to remain closer to the complete control end of the spectrum, but, slowly, but surely, have been moving more and more toward the other end.
We can argue about where they are exactly along the continuum, but that is not really relevant right now. The important thing is that they have been moving away from complete control and toward greater reliance on the market.
Which takes us to current market events.
The Chinese leaders are caught in a dilemma. Their first reaction to things getting out-of-control is to re-establish control. They don't like what is happening in the markets, so some of the leaders argue for establishing exactly what they want in the market.
As many western leaders can tell them, government officials just cannot wish markets to behave as they would like them to.
There is another faction within the Chinese leadership that has stood up, one that has promoted the move to greater reliance on markets. And, the battle goes on.
This is all a part of China learning to become a bigger player in the market-based world. Remember, China has only been moving in this direction for about twenty years. Also remember that, up to this point, the move to become more market-based has been very successful, achieving stunning rates of growth in the economy (even if some growth has been exaggerated in official data) and becoming a major player in many commodity markets. China is now a real economic force in the world.
The problems that precipitated the current crisis go deeper than just market manipulation and show us just how far the Chinese leadership has to grow to learn to be a member of the market community in good standing.
The control that China has exerted over its own development has created distortions that need to be worked out, especially in the real estate area. Also, the economy is in transition from being investment-driven to becoming more consumption-orientated. And, there have been greater efforts to conform more to global standards, like in the currency markets. China wants very badly to have its currency accepted as a reserve currency like the U.S. dollar, the Japanese yen, the British pound, and the euro.
Basically, there's a lot going on.
The response by Chinese leaders has been lacking. The openness and transparency of Chinese financial markets have been shown to be inadequate for major market moves, especially when the moves are downward. And, the Chinese have shown that they are not practiced in the timing of responses or in the way responses are announced.
To be really good at these things takes practice and many different kinds of experiences. There is a learning process that goes with becoming more market orientated.
The fact is that the Chinese are now a major part of the world economy and that a lot of this learning and doing will have some pretty important impacts on the rest of the world.
World leaders need to accept this fact and work with the Chinese leaders to move forward in building the new economic era. Working together will benefit us all.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.