President Obama has to be at least a little bit jealous of the power yielded by China’s leaders. He may use executive orders to get his way, but he has yet to follow the lead of Chinese President Xi Jinping.
In the U.S., we control the stock market by allowing the Federal Reserve Board to buy trillions of dollars’ worth of bonds and lower interest rates to zero.
China goes a bit further. It not only duplicates the U.S. approach of using quantitative easing to manipulate its stock market and currency; when the market fails to obey orders and go only in the upward direction, the government makes people disappear. 
“In all, executives from 34 companies have disappeared, with only some reappearing,” according to The Wall Street Journal’s L. Gordon Crovitz. “Among those was Guo Guangchang, chairman of the Fosun Group, who is known as China’s Warren Buffett. His interests include Cirque du Soleil, Club Med and the former Chase Manhattan Plaza in downtown Manhattan. Brokers and hedge-fund managers are also among the mysteriously missing.”
We suspect that the potential of disappearing creates an even more effective performance incentive than a Wall Street bonus, but China’s leaders don’t stop there.
To boost the market, the Chinese government is buying shares directly and through pensions, and pressuring brokers to buy. It bans large owners of individual stocks from selling more than 1% of total shares at once and requires them to inform exchanges three weeks in advance before selling any shares.
Crovitz wrote that the Chinese propaganda ministry also recently issued a directive to journalists: “Do not use emotionally charged words such as ‘slump,’ ‘spike’ or ‘collapse,’ ” it instructed. “Do not conduct in-depth analysis, and do not speculate on or assess the direction of the market.”
There are some parallels in the U.S., where the President refuses to use the word “terrorist” and will not call ISIS by its name. Meanwhile, the Fed’s policy statements refer to “underutilization of labor resources” to describe the college grads who are washing cars for a living because they can’t find jobs in their chosen professions.”
And a directive to journalists to “not conduct in-depth analysis” appears to be unnecessary. We will get a play-by-play analysis of the Patriots playoff game against Denver, but good luck finding an analysis that explains why in 2016 the stock market is off to its worst start in history. Who needs a ministry of propaganda?
It’s Not Working
Of course, making people disappear isn’t making China’s troubles disappear. In spite of the government’s best efforts, Crovitz reported this week, Chinese share prices have fallen 40% since summer.
“Last month, my dog ate what I ate,” wrote one Chinese investor who lost almost everything except his sense of humor. “Last week, I ate what my dog ate. This week, I ate my dog.”
The lesson here should be that you can’t have a free market economy without free markets, but that reality has long been lost on both the U.S. and China.
China’s Oversized Impact
China’s market swoon has been blamed for poor market performance in the U.S., as last week the S&P 500 closed down 13% from its July 2015 high. Writing in The Wall Street Journal, Alan Blinder, a former vice chair of the Fed, concluded that “the market is probably overreacting to news from China by a wide margin.”
“Over the first three quarters of 2015, the latest data available,” Blinder wrote, “exports to China made up less than 1% of U.S. GDP. Let’s imagine that Chinese purchases of U.S. products dropped by 10%, an implausibly steep decline. (For reference, the drop from 2014 to 2015 was zero.) Even such an extreme event would cut U.S. exports by less than 0.1% of GDP—an amount beneath notice.”
Blinder also wrote that, “Weakness in China can damage nations that rely heavily on exporting to China. And if those nations sag, they will buy less from us. So let’s double the estimate. That would still cut less than 0.2% from the U.S. growth rate. More severe outcomes are possible, but unlikely. So a China-induced trade contraction should be on our worry list, but not near the top.”
As the world’s second largest economy, what happens in China does affect what happens in the rest of the world, but Blinder may be right that China’s impact has been beyond what it should be.
He fails to note, though, that there are plenty of other reasons for the stock market’s tumble. One is that virtually every major economy is either in recession or close to it.
The chief problem for the U.S. stock market, though, is that the Fed is no longer propping up asset prices, so they are falling to the level they would be at without Fed manipulation. Its ill-timed interest-rate increase in December was also a major catalyst in the market decline.
China’s problems aren’t helping the U.S. market, but it’s likely that the U.S. market would be swooning now even if China’s market was soaring to record highs.