If the last three decades have been a roaring success, the next decade is much more complicatedby Isabel Hilton / July 9, 2015 / Leave a comment
Since 12th June, more than $2.7 trillion has been wiped off China’s stock market, equivalent to three months of the country’s economic output and some six times the value of the Greek foreign debt that is mesmerising Europe. This slide continues, despite increasingly desperate efforts by the Chinese government to stop it: emergency measures have included cash injections by the central bank, interest rate cuts, relaxed collateral rules, warnings on stock market manipulation—no sense of irony there—obliging brokerage houses to set up a $19bn fund to buy shares, with a pledge not to sell until the market recovers, and a suspension of new flotations.
Nothing has worked and by 8th July some 40 per cent of the companies listed had asked for trading in their own shares to be suspended, for fear of being obliterated. It began to look like Armageddon.
But appearances can be deceptive: this is not Wall Street 1929 or even 2007. Staggering though the figures are, the stock market still represents around 2 per cent of the Chinese economy. Despite dropping more than 30 per cent to date, the market is still up nearly 70 per cent on a year ago, when the same Chinese government set the bubble off by relaxing account rules and repeatedly announcing a bull run in state media. This is a market with Chinese characteristics.
Small investors piled in on the government’s signal: with 112m Shanghai trading accounts and 142m in Shenzhen, there are, famously, more small investors in China’s volatile shares than there are members of the Communist Party. The 20m new trading accounts that opened earlier this year testified to the faith that these small investors, short of safe harbours for their savings, have that the government that had backed the boom would not let them down.
Many of these latecomers have suffered, but despite the recent drama, many other investors are still up on the year. What the share slide has damaged, however, is the impression that the Chinese government cultivated,…