Peripheral signs of Chinese nervousness

That reliable source of geopolitical information, Stratfor, is reporting that the Chinese government recently formed a company called The Guoxin Asset Management Corporation.  It was capitalized with $680 million in funds.  That company, in turn, has just taken spent some of that money to make equity stakes in two separate businesses.  These are China Railway Signal and Communication Corporation and China Railway Material Group.

It is Stratfor’s belief that these actions are evidence that China wants to use Guoxin to bring other Chinese businesses under stricter government control.  An additional focus may be strategic industries.  The actions that are expected to take place are reform and restructuring.

Stratfor believes that the goal of the Chinese state is to make these state owned enterprises more efficient so that they siphon off less capital from more efficient, faster growing, private enterprises.  This is clearly a good thing if accomplished.

Speculation is also circulating that Guoxin may also be in charge of consolidating China’s rare earth minerals businesses in order to gain economies of scale.

For me, these actions from the government of China are evidence of a government highly focused on making its capital more efficient.  That is exactly what nations have to do when capital is too cheap/plentiful.  That is, this is another way for the Chinese to manage rampant inflation and concurrent investment in inefficient businesses.  Can you say: bubble?

Jason