China’s stock market is not a mythical creature

(From Radio Free Asia)

By Bao Tong

Tong, a former political aide to the late ousted premier Zhao Ziyang, is currently under house arrest at his home in Beijing.

China’s stock market is suffering from a roller coaster of booms and busts.

The stock market is a reflection of what is happening in other markets, and buying sprees and sudden falls are not a normal trajectory.

It is commonplace to see sharp falls in the stock market as indicative of a broader social or economic crisis. But is this applicable to China?

The stock market in China isn’t like stock markets everywhere else; it’s a bit of a freak phenomenon.

First, there is little correlation between the value of China-listed shares and the performance of the companies that list them.

Second, Chinese share indices are divorced from the wider economic situation, and even from the bigger picture generally.

This is a truth peculiar to China, and everyone from Joe Public right up to major figures in society, and government is aware of it.

The most recent proof of this truth is happening right now before our eyes.

During the past 12 months, China’s economy has clearly entered the long-postponed “new normal” phase. But China’s stock market seems to have been maliciously ramped higher and higher, rising by 147 percent until it reached a new high on June 12.

Actually, this turned out to be a curse rather than good news. Once past its peak, the stock market fell by 13 percent and 15 percent on two separate occasions.

But we should look at this cool-headedly, rather than treating it as the stroke of doom.

The effects of the plummeting market were serious, without a doubt.

First, it severely damaged and even wiped out the wealth of individual investors, who have nothing else to fall back on.

There are hundreds of millions of laid-off state employees who plowed their redundancy payments into shares during the 1990s because they had no other viable option.

Second, it was a big loss of face for our national leaders. It must have been hard for them to lose their omnipotence.

So now they are propping up the markets, and it’s too early to say whether or not this will work.
We can only try to imagine a few scenarios. Read more



Categories: AT Opinion, China

Tags: , , ,