In the first two parts of this series, I showed two things. First: more than half of the stock market boom in the US after 1989 did not come from economic growth, but from redistribution — from wages to shareholders. Second: this became possible because with the fall of the USSR, fear disappeared — the disciplinary threat that for 70 years made Western elites share the pie.
The logical third question is: what would bring back the fear?
The answer weighs 19 trillion dollars, produces about a third of the industrial output of the planet and is ruled by a party whose constitution states that power belongs to the working class. While Western capitalists celebrated the end of history for 35 years, something has quietly grown in Asia that they stubbornly refuse to see for what it is: an economic superpower in which capital is not the master, but the servant. And the most interesting evidence of this is a curve that every investor knows and no one likes to explain - the graph of the Chinese stock market.
The paradox: an economy that grew 5 times - stock market below the peak of 2007.
Remember one date: October 16, 2007. Then the Shanghai Composite Index reached its historic peak — 6124 points. Today, exactly 19 years later, it is trading around 3700-3800 points — nearly 40% below that peak. In the same 19 years, the Chinese economy has become about five times larger.
According to the logic of the textbooks, this is impossible. According to the logic of the first part of the series — on the contrary, it is completely natural: the stock market does not reflect the growth of the economy, but the share that capital manages to cut off from it. In America, the economy grew slowly, but the share of capital swelled — and the stock market soared. In China, the economy soared, but capital was unable to grab more of the pie — and the stock market is stagnant. The two cases are mirror images and confirm the same pattern.
This is not a journalistic statement, but a finding of financial science at the highest level. In 2024, the Journal of Finance — the same journal that published the study in the first part — comes out with labor „Dissecting the Long-Term Performance of the Chinese Stock Market" by Franklin Allen (Imperial College) and colleagues from Fudan and Shanghai University of Finance. The conclusion: with an economy performing beyond all expectations, the Chinese A-market has the worst performance among major countries, and investors in it have practically earned zero net returns. Listed companies have lower cash flows even than comparable unlisted Chinese companies — shareholder profit is simply not a priority for the system.
And where did the money go? With the 800 million
If growth has not gone to shareholders, where has it gone? The answer is the greatest economic transformation in human history.
According to World Bank data, China has lifted nearly 800 million people out of poverty in four decades — about three-quarters of all poverty reduction in the world over this period (joint report by the World Bank and the Chinese Ministry of Finance, 2022). The proportion of people living in extreme poverty has fallen from nearly 90% in the early 1980s to less than 2%. Today, China’s middle-income group officially exceeds 400 million people — the largest middle class on the planet, larger than the entire population of the United States. Real wages in manufacturing have multiplied; China is no longer the “land of cheap labor.”
Western capitalists, who have been moving factories there for 30 years, failed to read the fine print. Article 1 of the Chinese constitution defines the state as socialist, “led by the working class.” For a long time, this read like an empty phrase. Then came November 2020.
Jack Ma — the richest man in China, the founder of Alibaba — is preparing the listing of Ant Group: the largest IPO in world history, for about $37 billion. Days before the launch, Ma allows himself to publicly criticize regulators. The IPO is suspended for 48 hours. Ma disappears from the public eye for months. What follows: the “common prosperity” campaign, a regulatory crackdown that wiped over a trillion dollars off the market value of Chinese technology giants, and the transformation of an entire sector — private tutoring — into a non-profit activity literally with a single decree. The message to capital is crystal clear: here you earn while you serve. Not the other way around.
The world centered on Beijing: three scenarios for the rich
Branko Milanovic calls the Chinese model “political capitalism” — a system in which the market works, but the last word is always with politics, not capital („Capitalism, Alone", Harvard UP). And he argues that it is the competition between this model and Western liberal capitalism that will define the 21st century. Sound familiar? This is exactly the mechanism from the second part — the systemic competition that disciplined Western elites until 1991. However, the new rival is not a bankrupt planned economy, but the industrial center of the planet.
And the first effects are already a fact. In 2021, about 140 countries signed a global minimum corporate tax of 15% — the first turn in the 40-year race „who will take less from capital"; since 2024 it has been in force in the EU and dozens of other countries. In November 2024, in Rio, G20 leaders committed for the first time in history “to cooperate to ensure that the ultra-rich are taxed effectively" — On the table is economist Gabriel Zucman's plan for a minimum 2% annual tax on the wealth of the world's 3,000 billionaires. And industrial policy — a dirty word for 40 years — is back with a bang: hundreds of billions in state subsidies in the US and the EU. The rationale, uttered out loud in Washington and Brussels, is always the same: “otherwise China wins”.
If China really becomes the center of the world, the rich outside it face three scenarios:
Scenario 1: The return of fear. The most likely, according to the logic of the entire series. Western elites begin to divide again — not out of love, but out of competition: higher taxes on wealth, reindustrialization, a stronger bargaining position for labor. Just as during the Cold War, when the welfare state grew fastest along the Iron Curtain. The Western worker will again have something to point his finger at — only this time the argument is stronger than the Soviet one: the middle class is really growing there.
Scenario 2: There is nowhere to run. The hegemon writes the rules of world finance. The American world order was a haven for capital: free movement, offshore zones, the sacred right of the shareholder. A Beijing-centered order means other norms — capital controls, market-based politics, profit versus loyalty. A world in which the largest market no longer bows to the shareholder is a world in which the billionaire no longer has a “safe jurisdiction by default.”
Scenario 3: Two blocs, two rules. The world is dividing, and the wealthy in the West are under pressure from two sides at once — from outside competition from China, from within their own voters who ask why Chinese wages are rising and theirs are not.
Note: in all three scenarios, the direction for the super-rich outside China is the same. Down.
Where the thesis falls short — and where it stands
As in the previous parts — to be honest and what this thesis does not claim.
First, China is not a workers' paradise. There are no independent unions — there is only the official federation; labor rights activists are persecuted; the “996” culture (9am to 9pm, 6 days a week) is infamous, and the “hukou” system keeps hundreds of millions of internal migrants with curtailed rights. And inequality in China itself has skyrocketed: according to calculations by Piketty, Yang, and Zucman, the share of income in the top 10% rose from 27% in 1978 to 41% in 2015. "The working class rules" is a constitutional formula, not a sociological fact. The fact is narrower, but sufficient for our topic: in China, capital does not rule. The party does — and it keeps capital on a leash, as Jack Ma found out.
Second, the weak Chinese stock market also has more prosaic explanations, which the study in the Journal of Finance itself documents: poor selection of companies for listing, weak protection of small shareholders, almost no delisting of losing companies. Plus the ruthless internal competition, which in China already has a name - — — — and which crushes the margins of entire industries in favor of the consumer. The low stock market is not just „care for the worker"; it is a symptom that the system is not built around shareholder profits.
Third, the „when" itself is not guaranteed. In terms of purchasing power parity, China is already the world's first economy, but nominally it is second — with a demographic decline, a property crisis and debts. „When" may turn out to be „if". And the turnaround in the West is not straightforward: under Trump, the US abandoned the global corporate tax. But the very fact that 140 countries signed it at all — unthinkable in the 2000s — shows which way the wind is blowing.
The balance of the entire series can be summed up in one sentence: capital divides voluntarily only when there is someone to compare it with. Between 1917 and 1991, there was — and the Western worker lived his golden age. After 1991, there was — and $34 trillion flowed from wages to stocks. Now, comparison is looming again — this time with the factory of the world, where the stock market is stagnant and 800 million have been lifted out of poverty.
The Western rich spent 35 years in a world without an alternative. The next decades will be spent in a world where the alternative produces a third of everything and gradually begins to write the rules. The story in part two suggests what comes next: they will start dividing again. Not because they have become better. But because fear is back at work.
Sources:
- Allen, Qian, Shan, Zhu — „Dissecting the Long-Term Performance of the Chinese Stock Market", Journal of Finance 79(2), 2024
- Joint report of the World Bank, the Ministry of Finance and the Development Research Center of the State Council of the PRC on poverty reduction, 2022
- Shanghai Composite Index — historical data (peak 6124.04 points, October 16, 2007), Trading Economics
- G20 Leaders' Declaration from Rio de Janeiro on Taxing the Ultra-Rich, November 2024
- Zucman — „Taxing the Super-Rich — More Possible Than Ever", Social Europe
- Piketty, Yang, Zucman — „Capital Accumulation, Private Property and Rising Inequality in China, 1978–2015", American Economic Review, 2019
- Milanović — “Capitalism, Alone: The Future of the System That Rules the World" (Harvard UP, 2019)
- Part 1 and Part 2 of the series — at fakti.bg