Was It Actually Google That Crushed The Shanghai Stock Market?

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Tuesday night, after Google (GOOG) made its stunning announcement that it was mulling a withdrawal from China, the Shanghai market tanked 3.1%.

The fall, though, was attributed to regulatory action taken to decrease bank leverage, which will potentially prick the world's most obvious bubble.

But the government had been giving signs of making such a move all week.

On January 8 it jacked with a key interest rate that it hadn't touched in five months.

Going back to Google, physicist, finance whiz, and China observer Steve Hsu makes an important point:

The hacking used trojans injected via a zero-day vulnerability in Adobe (PDF file attachments). The claim that these attacks on multiple companies were coordinated by Chinese intelligence services is plausible but far from proven.

It's important to emphasize that the Chinese government is not monolithic. The parts of the government concerned with economic growth and technology development will be asking some hard questions of the intelligence apparatus about this. No economic planner wants high tech companies like Google or Adobe to stop operating in China as a consequence of security risks.

It's worth wondering the extent to which the fall in Shanghai was the result of investors growing nervous about the untenability of global capitalism under China's authoritarian dream.

We like to imagine that it's the whole world is dependent on China -- and its $2 trillion in forex reserves, as Thomas Friedman would point out -- but the fact of the matter is, is that if the world's major corporations and investors began losing confidence in the government, the country would be toast.

If the hottest company in the world (well, one of them) doesn't see fit to operate in your country, you've got problems.

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