On Sunday, Chinese authorities arrested a man for claiming on social media that some people in Beijing jumped off buildings, bruised by a massive stock market crash.
The 29-year-old Tian, was quickly picked up for spreading “rumours” and his post was deleted just as quickly. But clearly, it will not be so easy for the government to wipe out the loss, by some accounts, of over $3 trillion suffered in the past few weeks.
According to experts, the plunge has the potential to derail the development plans for the second-largest economy which is also slowing down. Latest data from the World Bank forecasts that China’s economic growth is expected to slacken to 7.1% in 2015 and 6.9% by 2017.
This crisis will certainly not help.
Apart from confidence-building editorials in Communist Party of China (CPC)-run newspapers, the government, over the weekend also put in place a series of measures to stall the plunge. The state media called the measures “unprecedented”.
“Since mid-June, the benchmark Shanghai Composite Index has tumbled by more than 29% in three weeks, including a 12% loss last week. For the Shenzhen Component Index and the ChiNext, the start-up board, the plunges were even deeper,” state-run Xinhua news agency reported.
Some experts see Beijing’s aggressive intervention as a blow to the government’s promised steps towards greater financial liberalisation, with a raft of planned IPOs seen as a move aimed at amending the state-owned sector.
“China has sufficient tools to bring the stock market back to sound footing as the economy keeps improving and the liquidity remains abundant,” said CPC’s flagship newspaper, the People’s Daily.
The country’s major brokers pledged to buy massive amounts of stocks to prop up markets, helped by China's state-backed margin finance company, while Beijing orchestrated a halt to new share issues, with dozens of firms scrapping their plans over the weekend to go public.
“Our economy is not doing well. People here have too much cash in hand and no channel to invest other than the stock market; manufacturing has slowed down, so has the service sector,” Liu Xiaoxue, an economist with the prestigious Chinese Academy of Social Sciences (CASS), told HT. “It is a bad economy. It is a bubble. The bubble is gradually bursting.”
China’s stocks enjoyed a credit-fuelled surge over the past year, almost doubling in size as they bucked an ebbing economy and falling corporate earnings.
“Apparently, the market collapse will deter the regulator from conducting major IPO reform,” Zhou Ling, a hedge fund manager at Shanghai Shiva Investment told the Hong Kong-based South China Morning Post (SCMP). “Severe losses by millions of investors in equities are a serious political issue, one that's much more urgent than the market reform.”
The crash has emerged as a key challenge for President Xi Jinping and the country’s top leaders, who are already striving to ward off a stiffer economic downturn.
“It will prompt the leadership to reassess the effectiveness of the policy-making,” Orient Securities chief economist Shao Yu told the SCMP. “The government needs to re-work the policy to find out which element it should focus on now, whether it's opening-up the financial markets, the innovations, or the risk- control.”
It was reported that the hottest topic about China on Twitter in the past 24 hours was the stock market: As it turns out, for all the wrong reasons.