‘The rules are flawed’: Chinese stock crash leaves investors cynical
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Version 0 of 1. BEIJING — When hairdresser Zhang Liang first tiptoed into the Chinese stock market back in March, things could hardly have gone better. Without any real idea what he was doing — he chose companies because their names seemed lucky or because they were backed by the government — he doubled his money in just a month. “I was so glad and said thank you to the Communist Party for giving me 50,000 yuan [about $8,000],” he said. “It was so easy to make money in the stock market.” Until it wasn’t. For millions of Chinese people seized by stock fever this past spring, dreams of easy money have quickly faded, as a stock market collapse has gathered pace and roiled global markets. The plunge has raised fresh doubts about the government’s ability to manage the economy and fueled a weary cynicism about inequality of opportunity in China’s one-party state. “The government made the rules of the game, and the rules are flawed,” Zhang said. “Ordinary people are always sacrificed when disaster strikes.” The run-up in shares was driven in part by a rush of first-time investors keen to capitalize on what the state promised would be a bull market. Zhang was one of them. Working in a quirky salon in Beijing, he earns good money cutting hair for a relatively well-off clientele, and he had saved 200,000 yuan (about $32,000), half of what he needed to buy a new Ford Mustang. He had looked for ways to invest his money but, like many fellow citizens, found that there weren’t many options available. Opening his own salon with a friend was too expensive, and other business ideas didn’t appeal to him. In May, he decided to put the entire sum into shares, believing that he could double his money again — and already dreaming of driving away in that Mustang. “Soon I sensed a hint of danger, because everyone around me was investing and acting like they had become the ‘god of stocks’ overnight,” he said. “I wondered whether to retreat, but the media was so full of good news, and everyone was so optimistic about the market.” [U.S. markets rise after wild seesaw trading in China] With China’s state-owned press banging the drum, China’s stock market seemed to be heading to the stratosphere. But in June, without any warning, the market faltered and then started to collapse. Before he knew it, Zhang said, it already seemed too late to get out. “I was too greedy,” he admitted ruefully. “I was like a gambler. I was desperate to double my money.” China’s stock market has fallen more than 40 percent since that June peak, wiping out its entire gains for the year. Millions of retail investors, who piled into the rally this year and dominate trading, are sitting on heavy losses. Zhang still has photos of Mustangs on his phone, but — with his money trapped in the market — he jokes that he cannot even afford a wheel these days. Despite blaming himself for his greed, he can’t contain a hint of bitterness at what he sees as “contradictory” government policy behind the market’s slide. “The government should pay for its mistake,” he said. “But how could the ruling party possibly even admit to having made a mistake?” In April, the People’s Daily, the Communist Party’s flagship newspaper, published an opinion piece declaring that the 4000 level on Shanghai’s main stock index was “just the start of the bull market.” This week, with the market collapsing toward 3000, there has been a deafening silence, with the front pages dominated by a two-day meeting of China’s top leadership about Tibet. The paper did note a decision to allow pension funds to invest in shares, and it reported Tuesday night’s decision by the central bank to cut interest rates. But it was largely silent on the turmoil engulfing the markets. China Central Television’s main evening news bulletin was also mum on Monday and Tuesday, when shares in Shanghai fell a cumulative 16 percent. That silence was briefly broken Wednesday when the social media account of the People’s Daily trumpeted a “big” increase in the market — as Shanghai’s main index rose a meager 0.8 percent in morning trading. The post was met with derision online, with one social media user remarking that “the lie about 4000 being the start of a bull market is still ringing in my ears.” “Didn’t you say 4000 was just the start?” another woman wrote. “I was tricked into the market by you! Now my apartment is gone.” [China’s economy is in big trouble, but it isn’t collapsing] When the markets first began falling, China’s government unleashed an extraordinary attempt to rescue shares. It established a $400 billion fund to buy stocks and ordered large investors not to sell shares — while launching a criminal investigation into people it blamed for “maliciously” shorting the market. But the scare tactics didn’t work for long, and by mid-August, the market was plummeting again. China Digital Times, a California-based group that tracks censorship here, reported in June that propaganda officials had ordered news media in China to avoid articles that “exaggerate panic or sadness.” This week, it reported that officials had ordered four articles critical of the authorities to be scrubbed from every domestic Web site. Financial market professionals say the government’s heavy-handed attempt to prop up the market had only sown more doubt in their minds: Had the government lost control, or was it panicking because the economic slowdown was worse than widely believed? But among the public, the mood still seems calm. Share ownership is limited to a relatively small section of the population, and although some people had overextended themselves by borrowing money to bet on a rising market, others were gambling only with funds they could afford to lose. “It is out of the money I don’t urgently need,” said a real estate investor who gave his name only as Li. He spoke in the flashy Parkview Green shopping mall in Beijing, where people pick up designer clothes and sip Starbucks lattes amid a permanent exhibition of modern art. While Chinese well know that the economy is slowing, many people are finding ways to make money. At a securities brokerage across Beijing, a 58-year-old retired accountant arrived Wednesday morning to open a new account. Declining to be named while talking about what has become a politically sensitive subject, she said she had 100,000 yuan ($15,600) ready to invest in the market but was still biding her time. “We might not be at the bottom yet,” she said. But if the accountant sounded confident in her ability to read the market, hairdresser Zhang seemed a little more out of his depth. He said he has not bought any new clothes since the market crashed — and won’t buy anything at all if the bill comes to more than 1,000 yuan ($156). “I just received a call from some friends telling me to sell some stocks to reduce the risk,’’ he said. “I think I’ll do it. My friends are the only source I can trust.” Emily Rauhala, Xu Jing, Xu Yangjingjing and Liu Liu contributed to this report. Read more: China’s economy is in big trouble, but it isn’t collapsing. 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