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Mainland shares have seen several days of erratic trade in recent weeks - despite moves by the Chinese securities regulator to calm markets.
The benchmark Shanghai Composite surged as much as 8% on Monday morning following a weekend of emergency meetings and more attempts to correct the volatility. It finished the trading day up 2.4%.
Here is how Chinese authorities have reacted so far:
Panic
It was all hands on deck over the weekend in a blizzard of emergency meetings and breathless headlines. Big market players were given no choice but to sign up to a government rescue.
Brokerages promised not to sell shares until the Shanghai market had recovered 4,500 points. They had to reach into their pockets on the spot for $19bn (£12.2bn) in a stabilisation fund.
All new share issues are suspended forthwith. The central bank will provide “liquidity support”, in other words turn on the lending tap, to help borrowers boost the market.
These emergency measures follow a slew of others over the course of the past week.
Taken together, they constitute a stunning retreat from market principles and suggest that at this point, the government itself has little confidence in its own financial markets.
Whether any of it will work or not remains to be seen. Shanghai’s benchmark index surged nearly 8% at Monday’s opening with the Shenzhen exchange not far behind.
But they fell back later in the day and Beijing will not breathe out yet.
Nearly $3tn in stock values has been wiped out in three weeks and some warn that the stabilisation fund may not be enough to corral the bears and stop the slide.
Others complain that the government moves will benefit big players who buy the blue chip shares and offer little help to small retail investors.
But more fundamentally many wonder why the government is panicking at all. Investors who bought more than four months ago are still sitting on a tidy profit given that shares rose 150% over the space of a year before losing 30% in three short weeks. At home and abroad, there are analysts who argue that the bubble needed to deflate and that a short sharp downward shock for investors is a useful corrective to speculative habits.
If the underlying fear is damage to the real economy wouldn’t it be better tackled by tax cuts or public spending increases?
But that is not the deepest fear. The government’s terror is being seen to be incompetent and even impotent.
This is a matter of confidence which goes well beyond the stock market.
Speculators have called Beijing’s bluff. The stock market has become a classic “too big to fail” problem, which is where step two comes in:
Look invincible
Nearly $3tn in stock values has been wiped out in three weeks
Beijing sees its own credibility as the thin red line between order and chaos.
Courtesy: Daily News 7 July 2015
