The Meaning of China's Stock Market Intervention – Council on …
Author: Joshua Kurlantzick, Senior Fellow for Southeast Asia
July 23, 2015
Bloomberg
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The spectacle of the stock market meltdown in China has led many analysts and investors to see an upside to the downturn. The slump is “the most serious crisis” facing President Xi Jinping “since he came to power,” China commentator Willy Lam told an audience of academics in Vancouver on July 10. “It will require a lot to restore people’s confidence in the regime.” Volatility might force the state to clean up the unregulated loans fueling stock purchases and to intervene less in equity markets and the broader economy. The drop might even foster massive discontent with the Communist Party and support for real political reform. That’s because in China, unlike other major nations where large institutions dominate the markets, retail investors—90 million or so individuals, most of them belonging to the urban elite—do most of the investing.
In reality, the stock market plunge is likely to have the opposite effect. Xi’s government is too closely linked, in many citizens’ minds, to a guarantee that stocks are a safe and profitable bet. “When a market malfunctions, the government should not let market sentiment turn from bad to worse. It should use powerful measures to strengthen market confidence,” said a July 20 commentary in the People’s Daily, the official newspaper of the Communist Party. To forestall public discontent, the regime is likely to become more interventionist in the market and possibly in the broader economy as well. It has made $483 billion available to the China Securities Finance Corp. to prop up the stock markets. While that might restore calm and foster short-term stability, it won’t benefit China or the world economy in the long run.
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The Meaning of China's Stock Market Intervention – Council on …
