For nearly three years, President Xi Jinping of China has crushed opposition by silencing and often locking up anyone who dares defy the government. But that aura of invincibility has been shaken by stock market speculators, who have made a mockery of efforts to halt a steep slide in share prices.
The losses – Chinese shares have shed more than a quarter of their value in three weeks – pose an added risk, and possibly greater danger, to a global economy grappling with Greece‘s difficulties in repaying foreign loans and its possible exit from the euro.
About $2.7 trillion in value has evaporated since the Chinese stock market peaked on June 12th. That is six times Greece‘s entire foreign debt, or 11 years of Greece‘s economic output.
Skeptical investors have so far shrugged off each step the government has taken to keep share prices aloft: an interest-rate cut, threats to punish rumour-mongers, allowing the national pension fund to buy stocks and even plans to investigate short-sellers who have placed bets that the market will fall.
Last weekend, the government rolled out further initiatives in hopes of forestalling another market rout this week: 21 brokerages agreed on Saturday to set up a fund worth at least $19.4 billion to buy blue-chip stocks, and both of the country‘s stock exchanges halted all new initial public offerings of shares.
On Sunday, the government brought in the central bank, the People‘s Bank of China, and an investment arm of the country‘s sovereign wealth fund to support the effort.
On Monday, the benchmark Shanghai Composite Index snapped a three-day losing streak Monday, rising 2.4 per cent to 3775.91.
“This is probably the most public and obvious instance where the government‘s omnipotence has been challenged,“ said Victor Shih, an associate professor at the University of California, San Diego, who studies the politics of financial policy making in China.
Chinese investors have 112 million accounts on the Shanghai stock market and 142 million accounts on the Shenzhen stock market; about 20 million accounts have opened this spring on each exchange, as novices have rushed to join a national fever of speculation.
The recent stock market losses are equal to three months of China‘s economic output, which reached $10.3 trillion last year. Economists increasingly worry that the losses may lead to a sharp drop in spending by Chinese consumers who have lost much of their savings.
A plunge in consumer confidence could deliver a shock to a Chinese economy that is already slowing.
"While turmoil in Greece has added to investor jitters of late, China's stock market slide could prove ultimately more damaging for the global economy," said Frederic Neumann, the co-head of Asian economic research at HSBC.
It could also have political ramifications. Harry Harding, a specialist in Chinese politics who is a visiting professor at the Hong Kong University of Science and Technology, said the plunge in the Chinese stock market could produce three successive ripples. The first would consist of investment losses for households, the second would lie in slower economic growth and the last would be a political backlash against Xi and his team. – Copyright New York Times 2015
