After a stunning stock market crash in China, the Chinese government is doomed to learn a lesson and understand that a governmental intervention may trigger market panic, thereby escalating the situation. With that in mind, any such intervention may do more harm than good and therefore looks inefficient.
Therefore, the current stat of affairs shows that some of the steps taken by the Chinese government regarding the local stock market have been inefficient at best, Masterforex-V Academy reports. The thing is that the local authorities have been trying to influence the stock market through urging public Chinese companies to buy back their stocks on to see the stock prices going further down.
The situation affected small-scale investors, thereby undermining the trust in the Chinese Communist party in terms of its ability to manipulate the market efficiently. At the same time, those who are responsible for conducting the economic policy in the Chinese government have their authority undermined to a great extent. This is a warning that no authoritative control can match the laws of the free market efficiently. Such an approach only hinders the development.
It should be reminded that the Chinese leader named Xi Jinping announced a new economic strategy for China, which is aimed at stimulating the local stock market. At first, it used to be successful. However, the reformers started confusing the growth of the stock market with its health. This resulted in the current crisis. Thousands of small-scale investors (who have never bought stocks) were “swallowed” by the stock market giants. With that said, if the Chinese government wants a healthy stock market backing the economic growth in China, they should focus on market rules and laws instead of the results of their policies.
Well, China has managed to suspend the market crash, the biggest one in 2 decades. Shanghai Composite Index and Shenzhen Composite already recovered by 5-6% after setting new local lows. The same hold true for almost 600 Chinese stocks. They gained back some 10% of the losses.
Stock Market Crash May Result In Economic Decline
As you probably know, the Chinese stock market crash started on Tuesday. Since then, the Chinese stock market lost some 3000 billion dollars of market capitalization. For the sake of comparison, a couple of months ago, the Chinese stock market used to be showing the world’s highest growth rate. After the crash triggered by margin trading and using debt to purchase equities, the stock exchanges were in shock. That gave birth to the fears that there is an economic bubble, which is about to burst. This is the biggest stock market crash in China since 1992.
The current situation in China seems to have put an end to a relatively fast pace of economic growth in China, thereby making the IMF acknowledge the key role of the Chinese economy, which has already ousted the USA form the leading position in some aspects.
So far, China has been using its economic success to gain more weight in global geopolitics and economy. Moreover, China even dares create a rival to the IMF and the World Bank. The new banking system is going to be launched in late 2015. On the other hand, if the stock market crash triggers an economic slowdown in China, this may result in even bigger economic and financial troubles for the Asian dragon. The thing is that the local population, which is over a billion people, needs financial and social support, which can be backed only by a healthy and growing economy.
