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Chinese leaders may be undermined as investors suffer stock market slide Chinese leaders may be undermined as investors suffer stock market slide
(about 2 hours later)
China’s stock market crash has wiped more than $3tn off the value of its companies in less than a month, a collapse likely to hinder promised efforts to reform the economy and that may undermine the standing of leaders including the Chinese president, Xi Jinping. China’s stock market crash has wiped more than $3tn off the value of its companies in less than a month, a collapse likely to hinder promised efforts to reform the economy and which may undermine the standing of leaders including the Chinese president, Xi Jinping.
The country’s wider economy is relatively well insulated, despite the astounding scale of the losses, both because the value of shares traded is a far smaller portion of national income than in the west, and because they have soaked up a lesser percentage of household assets.The country’s wider economy is relatively well insulated, despite the astounding scale of the losses, both because the value of shares traded is a far smaller portion of national income than in the west, and because they have soaked up a lesser percentage of household assets.
“What China has is not contagious, at least not directly,” Patrick Chovanec, chief strategist at Silvercrest Asset Management, and former professor at China’s influential Tsinghua University, said on Twitter. “I’d argue foreign financial exposure is limited and China’s capacity to consume will remain resilient.”“What China has is not contagious, at least not directly,” Patrick Chovanec, chief strategist at Silvercrest Asset Management, and former professor at China’s influential Tsinghua University, said on Twitter. “I’d argue foreign financial exposure is limited and China’s capacity to consume will remain resilient.”
Related: Chinese investors despair as gains wiped out in tumbling stock marketRelated: Chinese investors despair as gains wiped out in tumbling stock market
The greater risk may come from the heavy-handed way the government has handled the dramatic slide, which began in June and gathered pace this month, and the impact on national sentiment because so many of the losses have fallen on small-time investors.The greater risk may come from the heavy-handed way the government has handled the dramatic slide, which began in June and gathered pace this month, and the impact on national sentiment because so many of the losses have fallen on small-time investors.
In most of the world, stock markets are dominated by professional investors, but in China putting money into the markets had become a mix of entertainment and financial planning for ordinary citizens. Across most of the world, stock markets are dominated by professional investors, but in China putting money into the markets had become a mix of entertainment and financial planning for ordinary citizens.
More than 90 million people poured money into the Shanghai and Shenzhen stock markets, according to Bloomberg news agency, roughly the same number the Chinese communist party counts as members.More than 90 million people poured money into the Shanghai and Shenzhen stock markets, according to Bloomberg news agency, roughly the same number the Chinese communist party counts as members.
Many of those who piled in as the market climbed enjoyed the thrill of gambling in a country where more common games of chance are illegal. Some bought shares because the money-making opportunity seemed too good to miss, and others simply because Chinese citizens who want to invest savings are severely constrained in their options.Many of those who piled in as the market climbed enjoyed the thrill of gambling in a country where more common games of chance are illegal. Some bought shares because the money-making opportunity seemed too good to miss, and others simply because Chinese citizens who want to invest savings are severely constrained in their options.
Stock market fever took such a firm hold that some villages became famous for farmers-turned-investors who spent mornings tracking share prices before returning to back-breaking field labour when the markets closed. Since the rout began, these stories have been replaced by grim reports and rumours of suicides by desperate investors.Stock market fever took such a firm hold that some villages became famous for farmers-turned-investors who spent mornings tracking share prices before returning to back-breaking field labour when the markets closed. Since the rout began, these stories have been replaced by grim reports and rumours of suicides by desperate investors.
Much of the Communist party’s domestic credibility has come from shepherding the country through an economic expansion that has lifted hundreds of millions of people out of poverty, so growth and social stability have long been top priorities for Beijing.Much of the Communist party’s domestic credibility has come from shepherding the country through an economic expansion that has lifted hundreds of millions of people out of poverty, so growth and social stability have long been top priorities for Beijing.
Related: Why is China's stock market in crisis?Related: Why is China's stock market in crisis?
As uneasiness about the steep decline of share prices accelerated, the government stepped in to try and halt the fall, even though many analysts saw it as no more than an overdue correction to an overheated market. A top regulator warned of a “mood of panic” and officials unveiled a raft of interventions to try and prop up prices.As uneasiness about the steep decline of share prices accelerated, the government stepped in to try and halt the fall, even though many analysts saw it as no more than an overdue correction to an overheated market. A top regulator warned of a “mood of panic” and officials unveiled a raft of interventions to try and prop up prices.
These range from putting an indefinite halt to any new share listings – forcing anyone who wants to buy stock to invest in companies already on the markets – to arranging government-supported promises to buy shares on a massive scale. A state-backed company provided 21 brokerages with 260bn yuan ($41.8bn) to buy stock, Reuters reported.These range from putting an indefinite halt to any new share listings – forcing anyone who wants to buy stock to invest in companies already on the markets – to arranging government-supported promises to buy shares on a massive scale. A state-backed company provided 21 brokerages with 260bn yuan ($41.8bn) to buy stock, Reuters reported.
But that kind of intervention rows back on promises by the president to pursue reforms to the still state-dominated economy, as he tries to manage a slowdown in growth and the difficult shift from an export economy to one more dependent on domestic consumption.But that kind of intervention rows back on promises by the president to pursue reforms to the still state-dominated economy, as he tries to manage a slowdown in growth and the difficult shift from an export economy to one more dependent on domestic consumption.
And if losses deepen they could undermine his own standing as a popular strongman, bolstered by his anti-corruption crusade against some of the most powerful officials in the country. While economic management has usually been seen as more the domain of China’s premier, Xi has cultivated such a cult of personality since coming to power in 2012 that it seems unlikely he could entirely escape some sense of responsibility in the public eye.And if losses deepen they could undermine his own standing as a popular strongman, bolstered by his anti-corruption crusade against some of the most powerful officials in the country. While economic management has usually been seen as more the domain of China’s premier, Xi has cultivated such a cult of personality since coming to power in 2012 that it seems unlikely he could entirely escape some sense of responsibility in the public eye.