‘Playing Chicken’ in China’s Stock Market

The fact that Chinese stocks were climbing ever higher while the Chinese economy was cooling should have been an unmistakable warning of a bubble, but it caused surprisingly little concern. (Another reason to worry might have been the disparity in prices between so-called “A-shares”, which can only be purchased by investors inside China to keep the domestic market shielded from outside foreign manipulation, and stakes in the same companies available to foreign investors through the Hong Kong exchange, known as “H-Shares”. This disparity suggested Chinese investors were bidding up prices well beyond any reasonable approximation of their value.) In fact, drawn by the casino-like profits to be made in the boom, more and more small investors flocked to the thousands of brokerage houses that are now proliferating in every Chinese city in order to buy and sell while staring up at flickering electronic data boards charting the rise and fall of equity prices.

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The party might have been excused if it had simply eschewed responsibility for what was happening. After all, markets have a logic of their own that makes them both rise and fall according to their own forces. But, instead of simply saying, “Not our problem”, it launched a massive socialist-style rescue campaign, thereby making the party responsible for everything that happened thereafter.

Why did the party allow itself to become stuck in this quicksand? Leaders evidently felt themselves threatened not only by the collapsing share prices, but by what they also feared would be perceived as an erosion of their own credibility. What they seem to have concluded was at stake was their ability to continue projecting an image of omnipotence – the appearance, at least, of being strong enough to continue guiding and controlling “all under heaven” (tianxia).

—In his Guardian story, “Why China’s stock market was always bound to burst,” Orville Schell explains what led to the rout, and why the government is intervening. “It is a game of chicken,” a China strategist told Bloomberg Business in a story about China’s increasingly forceful efforts to prop up the market. “For now, it seems to be working.”

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