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Cramer: Communist China is guessing with stocks

Cramer: Communist China is guessing with stocks
Cramer: Communist China is guessing with stocks

According to Jim Cramer, the Chinese communists are running the Shanghai composite through trial and error. They are inventing new techniques to manage stocks and will do what is necessary to stabilize the index.

On Monday, they tried circuit breakers, and that ended in error. Tuesday, they decided to put billions to work just so market didn't crash under its own weight.

They are doing whatever they want. Cramer wouldn't be surprised to see the Chinese government go to great lengths to extend the ban on selling large blocks, bar insiders from significant sales or even demand households only buy stocks, not sell.

While these tactics may sound ridiculous to some, Cramer thinks they could actually be possible under the rule of law in China.

"The rule is very simple — the Communist Party runs the show, and they will do whatever is necessary to keep the balls in the air, and do it longer than anyone here in the West believes possible," the "Mad Money" host said.

China doesn't play by the rules. In fact, in some ways, the rules seem silly to them
Jim Cramer

Between Aug. 19 and Aug. 26, 2015, the Shanghai composite plunged to 2,927 from 3,794. During that time, many wise investors said the Chinese government would not be able to stop the decline. They were wrong.

"No democratically elected government with rules and mechanisms and checks and balances could do it. But China doesn't play by the rules. In fact, in some ways, the rules seem silly to them," Cramer said.

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Cramer thinks China is not about to allow anyone to destroy the wealth it has created. The Communist Party wants to build wealth to create a consumer-led economy to emerge, one that creates less pollution and spends money more like Americans.

The Chinese stock market is still in its infancy, and the government is making up the rules as they go along. So, the recent volatile trading in China can be attributed to communists tinkering with the notion of how to make it work.

"My point is you need to learn from what happened in August. China is a communist dictatorship that has confiscated more wealth than any other nation on Earth, and they are real keen on executing people for white-collar crimes," Cramer said.

So, if the Communist Party wants the Shanghai composite index to stay above 3,000, Cramer thinks they will find a way. They did it in August, and will do it again.

It seemed to Cramer that the Chinese government is taking a multidecade view of its stock market. They want to figure out how it works, and they got a little too rambunctious recently. They figured things had calmed down since the summer and started making adjustments.

"Are those adjustments phony? Not if you are the one making the rules. And in China, the Communist Party makes the rules, or at least makes up the rules as they go along," Cramer said.

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