by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Xi’s government is too closely linked, in many citizens’ minds, to a guarantee that stocks are a safe and profitable bet. “When a market malfunctions, the government should not let market sentiment turn from bad to worse. It should use powerful measures to strengthen market confidence,” said a July 20 commentary in the People’s Daily, the official newspaper of the Communist Party. To forestall public discontent, the regime is likely to become more interventionist in the market and possibly in the broader economy as well. It has made $483 billion available to the China Securities Finance Corp. to prop up the stock markets. While that might restore calm and foster short-term stability, it won’t benefit China or the world economy in the long run.
There’s no doubt that some Chinese investors—especially novices who hadn’t previously witnessed a selloff—feel betrayed by Beijing’s assurances of prosperity. China’s financial microblogs, where ordinary investors chat and which had focused previously on market tips, are now full of broadsides against the government. One furious investor posted an essay that soon became a viral sensation. Ruing that the crash had wiped out the savings of many members of the middle class, he said, “For us the ‘Chinese dream’ is just a dream.”
At the same time, most critics on the microblogs haven’t called for faster economic or political liberalization. Instead, they demand the government do more to “save” the exchanges, even if that gives the central government greater powers. The pace of the selloff seems to have convinced Beijing, too, that it should intervene more in the markets, not less.
More government intervention in markets? We’ll see how well that works out for the Chinese.