Business

China’s Market Is Crashing, And It’s Doing Everything Wrong

Daily Caller News Foundation logo
Blake Neff Reporter
Font Size:

The stock market of China is in a free fall, and critics both inside and outside the country are accusing its Communist government of doing virtually everything wrong in its efforts to contain the crisis, risking the creation of Great Depression-level crash.

The implosion began about a month ago, when the Shanghai Composite Index closed at a high of 5,166, more than twice its value from last October. That extreme bull market was enabled by regulatory changes, with the government reducing trading fees and taking other steps that made it easier for both individuals and companies to take on debt in order to buy up stocks. But now the bubble is popping even faster than it inflated, and Beijing has been powerless to stop it. Today, the Shanghai Composite is down to 3,507, a drop of 33 percent in less than a month.

The Chinese government has made a number of aggressive moves to try and halt the drop. It is investing hundreds billions of dollars from the state’s pension fund, and then forbidding fund managers to sell. It has blocked any new initial public offerings, banned short selling, and pressured financial firms to buy shares which they are pledging to hold until the market has risen at least 20 percent.

The country has also tried to stem the rapid sell-off by simply banning major shareholders and corporate executives from selling their stakes in certain companies for six months, an approach that Wells Fargo financial expert Brian Jacobson told Bloomberg would simply never happen “in the U.S. or in any other developed market.”

Most dramatically, China has allowed over 1,300 companies to halt trading in order to “self preserve,” in the words of Chinese state media. As of this writing, over 40 percent of China’s equity market has frozen up.

But rather than improving the situation, many experts say China is simply making things far, far worse. Hong Kong-based business experts (who can speak more freely than their mainland colleagues) have pointed out one glaring problem with China’s meddling: Their actions have made it impossible for investors to get any accurate handle on the value of Chinese assets.

“The market has failed,” Hong Kong business strategist Hao Hong told Bloomberg Wednesday. “It’s distorted because we keep changing the rules as we play the game.”

Another Hong Kong financial expert was even more critical of his government: “Government intervention is clearly doing more negative than good,” said money manager Tony Chu. “There’s really panic out there.”

Nils Pratley, a finance writer for Britain’s The Guardian, recently wrote a scathing piece warning that China’s strategy would be “laughed out of court” if attempted by a Western government. He is particularly critical of the government directing more money to a state finance company whose purpose is to make loans so investors can make bigger stock market bets than they otherwise would.

“That’s right, in today’s communist China, there are subsidies for stock market speculation,” says Pratley.

The biggest problem isn’t the immediate danger of huge losses, though, says Pratley. It’s the long-term harm created by China’s government blatantly trying to dictate the market, decreeing that “share prices must rise because the state … has issued an order.”

“Whatever the outcome in the next few weeks, a policy of state-directed share prices is unsustainable in the long run. If investors believe there is an official safety net to protect them from losses, the next bubble will be bigger and even harder to deflate safely.”

For now, though, it looks like the catastrophe may be arriving sooner rather than later. The bloodbath reached a new peak Wednesday, despite Beijing’s best efforts. The Shanghai Composite fell a terrifying 8.2 percent in just three minutes at opening, and recovered only slightly to close with a 5.9 percent drop. The CSI3000 index, a collection of the 3,000 largest companies on the Shanghai and Shenzhen exchanges, saw a gruesome 6.8 percent drop in one day. Some of the most dire forecasters have pointed out that the scale of the drop, and the desperate coping measures, correlate very closely to the 1929 Wall Street Crash that preceded the Great Depression.

Why is China so desperate to stem what could be a natural, necessary correction? Many point to the nature of China’s one-party state. Over 90 million people are invested in the stock market, and the government may fear that a severe downturn could create the mass discontent necessary to endanger the regime. In the past, Chinese officials have worried if growth falls below 8 percent a year, it could trigger political upheaval.

Follow Blake on Twitter

Content created by The Daily Caller News Foundation is available without charge to any eligible news publisher that can provide a large audience. For licensing opportunities of our original content, please contact licensing@dailycallernewsfoundation.org.

All content created by the Daily Caller News Foundation, an independent and nonpartisan newswire service, is available without charge to any legitimate news publisher that can provide a large audience. All republished articles must include our logo, our reporter’s byline and their DCNF affiliation. For any questions about our guidelines or partnering with us, please contact licensing@dailycallernewsfoundation.org.

PREMIUM ARTICLE: Subscribe To Keep Reading

Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign Up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
BENEFITS READERS PASS PATRIOTS FOUNDERS
Daily and Breaking Newsletters
Daily Caller Shows
Ad Free Experience
Exclusive Articles
Custom Newsletters
Editor Daily Rundown
Behind The Scenes Coverage
Award Winning Documentaries
Patriot War Room
Patriot Live Chat
Exclusive Events
Gold Membership Card
Tucker Mug

What does Founders Club include?

Tucker Mug and Membership Card
Founders

Readers,

Instead of sucking up to the political and corporate powers that dominate America, The Daily Caller is fighting for you — our readers. We humbly ask you to consider joining us in this fight.

Now that millions of readers are rejecting the increasingly biased and even corrupt corporate media and joining us daily, there are powerful forces lined up to stop us: the old guard of the news media hopes to marginalize us; the big corporate ad agencies want to deprive us of revenue and put us out of business; senators threaten to have our reporters arrested for asking simple questions; the big tech platforms want to limit our ability to communicate with you; and the political party establishments feel threatened by our independence.

We don't complain -- we can't stand complainers -- but we do call it how we see it. We have a fight on our hands, and it's intense. We need your help to smash through the big tech, big media and big government blockade.

We're the insurgent outsiders for a reason: our deep-dive investigations hold the powerful to account. Our original videos undermine their narratives on a daily basis. Even our insistence on having fun infuriates them -- because we won’t bend the knee to political correctness.

One reason we stand apart is because we are not afraid to say we love America. We love her with every fiber of our being, and we think she's worth saving from today’s craziness.

Help us save her.

A second reason we stand out is the sheer number of honest responsible reporters we have helped train. We have trained so many solid reporters that they now hold prominent positions at publications across the political spectrum. Hear a rare reasonable voice at a place like CNN? There’s a good chance they were trained at Daily Caller. Same goes for the numerous Daily Caller alumni dominating the news coverage at outlets such as Fox News, Newsmax, Daily Wire and many others.

Simply put, America needs solid reporters fighting to tell the truth or we will never have honest elections or a fair system. We are working tirelessly to make that happen and we are making a difference.

Since 2010, The Daily Caller has grown immensely. We're in the halls of Congress. We're in the Oval Office. And we're in up to 20 million homes every single month. That's 20 million Americans like you who are impossible to ignore.

We can overcome the forces lined up against all of us. This is an important mission but we can’t do it unless you — the everyday Americans forgotten by the establishment — have our back.

Please consider becoming a Daily Caller Patriot today, and help us keep doing work that holds politicians, corporations and other leaders accountable. Help us thumb our noses at political correctness. Help us train a new generation of news reporters who will actually tell the truth. And help us remind Americans everywhere that there are millions of us who remain clear-eyed about our country's greatness.

In return for membership, Daily Caller Patriots will be able to read The Daily Caller without any of the ads that we have long used to support our mission. We know the ads drive you crazy. They drive us crazy too. But we need revenue to keep the fight going. If you join us, we will cut out the ads for you and put every Lincoln-headed cent we earn into amplifying our voice, training even more solid reporters, and giving you the ad-free experience and lightning fast website you deserve.

Patriots will also be eligible for Patriots Only content, newsletters, chats and live events with our reporters and editors. It's simple: welcome us into your lives, and we'll welcome you into ours.

We can save America together.

Become a Daily Caller Patriot today.

Signature

Neil Patel