The Chinese government has had its hands full as the recent stock market crisis continues to unfold. In an interview on FOX Business Network’s Countdown to the Closing Bell, Jon Huntsman, former Utah governor and former U.S. Ambassador to China, said the country’s leadership needs “total reform.”
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“They need transparency, they need to change corporate governance practices and they need to quit their practices of discounted cash, inter-company transfers and discounted raw material prices for their manufacturing companies,” Huntsman said.
Huntsman explained the best way to understand the current situation in China is to separate the markets from the overall economy.
“You’ve got to differentiate the equity market from the real GDP performance and where the economy is going in a larger, broader context. The loss of physics and sound money apply here [in the U.S.] and they apply in China as well.”
He added, “you can only go so far with values, particularly in the Shenzhen and Shanghai exchanges, that exceed, for example, the numbers that we’ve seen on the S&P 500 by two times."
Huntsman said he believes the extreme swings in the global market are due in large part to a natural, long-overdue correction. He said in the long run, the recalibration is likely to be, in his eyes, healthy for stock values in China.
"I think it’s a step closer to where China needs to be in terms of standardizing their exchanges, so they’re less casino and more mainstream exchanges. That’s clearly something they’re going to want longer-term," he said.