This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.nytimes.com/2015/07/10/world/asia/china-stock-market-crash-communist-xi-jinping.html
The article has changed 5 times. There is an RSS feed of changes available.
| Version 1 | Version 2 |
|---|---|
| Market Plunge in China Dents Communist Party’s Stature | |
| (about 2 hours later) | |
| BEIJING — Yu Xilin was obsessing on China’s plummeting stock market when he tumbled off his bicycle. But the accident did not sway his focus. While recovering in the hospital on Thursday from surgery for a broken ankle and shoulder, he was using his smartphone to track his shares. | |
| “The government departments that are supposed to be monitoring the stock market aren’t doing their job properly,” Mr. Yu, 55, the director of a provincial cultural exchange office, said by phone from his hospital bed in the northwestern city of Xi’an. “This will affect the image of our leaders. Investors are very upset.” | “The government departments that are supposed to be monitoring the stock market aren’t doing their job properly,” Mr. Yu, 55, the director of a provincial cultural exchange office, said by phone from his hospital bed in the northwestern city of Xi’an. “This will affect the image of our leaders. Investors are very upset.” |
| Even if China’s stock markets end their dizzying falls — and analysts say there is still room to tumble even after a respite on Thursday — the sense of supreme control that once cloaked the Communist Party leadership may take longer to recover. | |
| Across China, many of the millions of middle-class investors have been asking why the party and the government talked up the market in the months leading up to the recent plunge, and then bumbled in their efforts to prevent the rout. | |
| “It’s not only about the falling stock,” said Kerry Brown, director of the China Studies Center at the University of Sydney in Australia. “It’s about the falling political credibility.” | “It’s not only about the falling stock,” said Kerry Brown, director of the China Studies Center at the University of Sydney in Australia. “It’s about the falling political credibility.” |
| On that score, perhaps no one has taken a bigger hit than President Xi Jinping, who since becoming leader of the Communist Party in late 2012 has meticulously crafted an image of omnipotence. | |
| He has been credited with acting decisively on several issues that include corruption, cybersecurity and Chinese territorial claims in the South China Sea. When earthquakes or other natural calamities hit China, he and the prime minister, Li Keqiang, made reassuring announcements in the state news media or even traveled to disaster sites to demonstrate their calm command. | |
| But since the market began to slide, with the main Shanghai index losing 32 percent of its value over three and a half weeks, the two leaders have been silent on the subject. | But since the market began to slide, with the main Shanghai index losing 32 percent of its value over three and a half weeks, the two leaders have been silent on the subject. |
| Even if regulators reverse the fall, an effort that could in turn distort market forces, the government’s muddled response has raised questions about Mr. Xi’s authority and judgment. | Even if regulators reverse the fall, an effort that could in turn distort market forces, the government’s muddled response has raised questions about Mr. Xi’s authority and judgment. |
| “A middle class that believed deeply that the motherland would become strong has been eviscerated,” said an essay circulating on Chinese websites this week that was credited to an investor who had lost most of his savings. “This was a stock wipeout that thoroughly damaged middle-class assets from a decade of striving. For us, the China Dream really is just a dream.” | “A middle class that believed deeply that the motherland would become strong has been eviscerated,” said an essay circulating on Chinese websites this week that was credited to an investor who had lost most of his savings. “This was a stock wipeout that thoroughly damaged middle-class assets from a decade of striving. For us, the China Dream really is just a dream.” |
| The giddiest investors, including those who took on debt to buy stock, are wondering if they can recover their fortunes. Some have posted notices on property rental and sales websites saying they need to sell their homes quickly to raise cash. | The giddiest investors, including those who took on debt to buy stock, are wondering if they can recover their fortunes. Some have posted notices on property rental and sales websites saying they need to sell their homes quickly to raise cash. |
| Even bystanders who stayed out of the market are asking, if a mere market correction could rattle the government, what might happen during a serious downturn? At stake is not only the stability of China’s economy, but also faith in Mr. Xi and his colleagues. | |
| “This undercuts the confidence of the rising Chinese bourgeoisie,” Mr. Brown said. “For this leadership, they’ve got to keep the emerging aspiring urban Chinese middle class on side.” | “This undercuts the confidence of the rising Chinese bourgeoisie,” Mr. Brown said. “For this leadership, they’ve got to keep the emerging aspiring urban Chinese middle class on side.” |
| Though the craze for stock speculation spread far across China in the last year, sweeping up retirees and even villagers, much of the investment came from urban professionals and white-collar workers looking for more productive ways to increase their savings. | |
| Credit Suisse estimated in a research note this week that 80 percent of urban Chinese households held stakes in the stock market, either directly or through equity funds that invest in it. By midway through this year, 8.8 percent of all Chinese households had bought stocks directly, and the vast majority were urban dwellers, according to the China Household Finance Survey, conducted by the Southwestern University of Finance and Economics in Chengdu. | Credit Suisse estimated in a research note this week that 80 percent of urban Chinese households held stakes in the stock market, either directly or through equity funds that invest in it. By midway through this year, 8.8 percent of all Chinese households had bought stocks directly, and the vast majority were urban dwellers, according to the China Household Finance Survey, conducted by the Southwestern University of Finance and Economics in Chengdu. |
| Under Mr. Xi, the government has urged households to invest in the stock market to meet several economic imperatives: to generate more capital for state-run companies being weaned off bank loans, to strengthen the private companies that create many of the country’s jobs, and to lift the confidence of consumers so that they will play a bigger role in driving economic growth. | Under Mr. Xi, the government has urged households to invest in the stock market to meet several economic imperatives: to generate more capital for state-run companies being weaned off bank loans, to strengthen the private companies that create many of the country’s jobs, and to lift the confidence of consumers so that they will play a bigger role in driving economic growth. |
| Moreover, editorials in China’s state-run news media celebrated the rising indexes as affirmation of Mr. Xi’s recipe for national strength — a measured easing of state controls on the economy while keeping political power firmly in the hands of the party elite. | |
| Market adulation reached its peak in April, when a commentary on the website of People’s Daily, the party’s flagship newspaper, told readers the 4,000 point mark reached by the Shanghai Stock Exchange was “only the start of the bull market.” | |
| “What’s a bubble? Tulips and Bitcoins are bubbles,” the author, Wang Ruoyu, wrote, scoffing at warnings that the Chinese stock markets were bound to burst. He expressed confidence in the long-term prospects of the common stocks known as A Shares traded on the Shanghai and Shenzhen exchanges. | “What’s a bubble? Tulips and Bitcoins are bubbles,” the author, Wang Ruoyu, wrote, scoffing at warnings that the Chinese stock markets were bound to burst. He expressed confidence in the long-term prospects of the common stocks known as A Shares traded on the Shanghai and Shenzhen exchanges. |
| “If A Shares are seen as the bearers of the Chinese Dream, then they contain massive investment opportunities,” he wrote. | “If A Shares are seen as the bearers of the Chinese Dream, then they contain massive investment opportunities,” he wrote. |
| The official drumbeat for investment “created a lot of political pressure, especially among the securities regulators, to not end the party by too much regulator oversight,” said Victor Shih, a political scientist at the University of California, San Diego, who studies financial policy-making in China. “Nobody wanted to seriously crack down on these insane practices because nobody among the regulators wanted to be the one to end the bubble.” | The official drumbeat for investment “created a lot of political pressure, especially among the securities regulators, to not end the party by too much regulator oversight,” said Victor Shih, a political scientist at the University of California, San Diego, who studies financial policy-making in China. “Nobody wanted to seriously crack down on these insane practices because nobody among the regulators wanted to be the one to end the bubble.” |
| Mr. Yu, the investor in Xi’an, said he had begun buying stocks last year on the advice of friends and colleagues and because he “had been hearing good news, positive news about the big state-owned enterprises.” | Mr. Yu, the investor in Xi’an, said he had begun buying stocks last year on the advice of friends and colleagues and because he “had been hearing good news, positive news about the big state-owned enterprises.” |
| “I was surprised that despite the positive news, the market went down,” he said. “I was not just a little bit surprised. I was shocked.” | “I was surprised that despite the positive news, the market went down,” he said. “I was not just a little bit surprised. I was shocked.” |
| Since last year, Mr. Yu had poured nearly $90,000 into Chinese stocks, about one-third of his savings, and as of Thursday, his investments were worth about half that amount. | Since last year, Mr. Yu had poured nearly $90,000 into Chinese stocks, about one-third of his savings, and as of Thursday, his investments were worth about half that amount. |
| A friend of his, Si Kaibao, 45, a construction entrepreneur, said his stock market investments had lost 75 percent of their value since the peak last month. He said he wanted to quit investing until the rules and the system were more stable. | A friend of his, Si Kaibao, 45, a construction entrepreneur, said his stock market investments had lost 75 percent of their value since the peak last month. He said he wanted to quit investing until the rules and the system were more stable. |
| “I feel that our stock market is not up to standard,” he said. “It’s not really investing. It’s more like risk taking.” | |
| Gao Yike, 25, an investor and an employee at a real estate company in Harbin, blamed the market fall on “the state’s inadequate regulation.” | Gao Yike, 25, an investor and an employee at a real estate company in Harbin, blamed the market fall on “the state’s inadequate regulation.” |
| He said investors were like “trapped prisoners,” and government policies had been useless. “The bull market was itself a policy-driven one, so only major policies can save it,” he said. | |
| People inside and outside China are awaiting the next steps taken by Mr. Xi and Mr. Li, the prime minister. | |
| The political implications of the crisis will depend “on how much farther this will go, what measures the government will still deploy to deal with it and how it is explained to those who are losing money,” said Kenneth G. Lieberthal, a scholar of Chinese politics at the Brookings Institution and a former senior director for Asia on the United States’ National Security Council. | The political implications of the crisis will depend “on how much farther this will go, what measures the government will still deploy to deal with it and how it is explained to those who are losing money,” said Kenneth G. Lieberthal, a scholar of Chinese politics at the Brookings Institution and a former senior director for Asia on the United States’ National Security Council. |
| “I am sure there must be arguments within the leadership as to how far to allow the stock market bubble to deflate before pulling out the stops to prevent a major meltdown,” he said. “This is not a governing system that has well-developed regulatory capabilities, and there are a lot of areas in which information available to the leaders is very incomplete or distorted.” | “I am sure there must be arguments within the leadership as to how far to allow the stock market bubble to deflate before pulling out the stops to prevent a major meltdown,” he said. “This is not a governing system that has well-developed regulatory capabilities, and there are a lot of areas in which information available to the leaders is very incomplete or distorted.” |
| Even if the market were to stabilize, many casual investors would be too shaken to invest again soon in stocks, said Xu Yang, a Shanghai resident who lives off his investments in stocks and securities. “The loss might be a paper loss, but that still hurts,” he said. | Even if the market were to stabilize, many casual investors would be too shaken to invest again soon in stocks, said Xu Yang, a Shanghai resident who lives off his investments in stocks and securities. “The loss might be a paper loss, but that still hurts,” he said. |
| Yet there are those who still see the stock market as the best investment, given low interest rates at banks and the huge amount of capital needed to buy property in many cities. | Yet there are those who still see the stock market as the best investment, given low interest rates at banks and the huge amount of capital needed to buy property in many cities. |
| Song Tairan, 25, an employee at an Internet company in Beijing who lost 20 percent of a first-time $16,000 investment he made in March, said he was still in. | Song Tairan, 25, an employee at an Internet company in Beijing who lost 20 percent of a first-time $16,000 investment he made in March, said he was still in. |
| “I’m not anxious anymore because I’m used to the tumbling now,” he said. “I plan to invest again. The whole situation seems to be improving. I’m bullish on the stock market.” | “I’m not anxious anymore because I’m used to the tumbling now,” he said. “I plan to invest again. The whole situation seems to be improving. I’m bullish on the stock market.” |