Chinese stock market drop a serious test for country’s economic, political stability

Aug. 13, 2015 - PRLog -- A sudden drop of the Chinese stock market levels was a big blow to the country’s economic and political stability, thinks Charlie Hore, journalist of Socialist Worker, in his article titled “Bubbles, bounces and busts in China.”

According to him, after a high point in early June 2015 the stock markets of the PRC went down by over $3.5 trillion, or almost 15 times the value of the Greece GDP.

“Greece’s debts, and for that matter the British deficit, look trivial by comparison,” the author writes.

However, he points out that even the recent events did not push the market into an overall decline, as it still shows growth compared to February 2015 since the market almost doubled before the recent fall.

Charlie Hore reminds that every tenth Chinese citizen was involved in the stock market by early June, which constitutes nearly 90 million people, almost as much as the member list of the Communist Party of China.

“Many of [them] will have lost almost everything they invested. They include 20 million people who only opened share accounts in the last six months, and according to Isobel Hilton in the Guardian, ‘60 million of them did not finish high school – so mostly migrant workers and the poor in the cities’,” the author explains.

In his opinion, the Chinese authorities sought to boost economic growth through encouraging stock market participation, pushing people to use their savings against urgent needs and old age.

“[The government] earlier this year eased access to credit for buying stocks and shares, even allowing people to borrow against the value of their homes. The easy availability of online credit, albeit at very high rates of interest, further fuelled the boom, as did the government's active promotion of new share issues and Initial Public Offerings (IPOs),” the journalist writes.

He stresses the fact that Beijing used all means possible to contain the drop, a move some Western media sources called disproportionate: in particular, the Chinese authorities banned state-owned companies from trading and froze the shares of the most-traded companies, which affected 1,300 companies representing almost 40 percent of total market value.

Moreover, as the author points out, the Chinese media were instructed to discontinue reports, discussions, expert interviews and live coverage on the stock market for the time being and avoid using such words with negative subtext as “slump,” “spike” or “collapse.”

“[Beijing even appealed] to ‘patriotism’ by blaming foreign investors for the drop (in reality foreign capital accounts for only a tiny fraction of the Chinese stock markets),” the Socialist Worker reporter explains.

From his point of view, the Chinese authorities succeeded in halting the market decline, but remain cautious due to remaining negative mood and a general scare among small investors that may cause further decline as trading resumes.

“And this bubble has followed previous bubbles in the property market and in the banking sector, all of which have greatly increased the amounts of bad or dubious debt floating around in the Chinese economy,” Charlie Hore points out.

In spite of that, he concludes that the Chinese economy took the blow in stride and is still up and running.

Full text news agency "PenzaNews":http://penzanews.ru/en/opinion/59237-2015