Ahead of the Chinese new year holiday, Beijing has been intervening to prop up the country’s stock markets. Regulators have tightened market trading conditions, and this week the head of the China Securities Regulatory Commission, Yi Huiman, was fired abruptly, presumably as the fall-guy for the relentless decline in the markets, which have lost about $6 trillion in value since the end of 2021.
Chinese equity prices have touched their lowest levels since 2018, and are not far from the lows reached in the 2015-16 financial crisis. Mr Yi’s two predecessors were also fired in 2015 and 2019. Whether the authorities now succeed in reversing the rout is important, but what they are up to and why calls for some deeper thought.
China’s stock market is curious. It’s the second biggest in the world, and the government has been urging domestic firms, especially since 2020, to raise capital at home. But in terms of global impact, it hardly figures, and certainly compared with the US. As a marker of domestic economic performance, it is also of little significance. Yet, it matters in the current circumstances.
There is a palpable concern about financial instability in China that travels all the way up to Xi Jinping. There is an angst that the market slump is a weathervane for the erosion of confidence in the economy and in the traditional belief in the decisiveness of Chinese policymakers. For the last several months they have demonstrated that they are not on top of the stock market’s decline, nor, more to the point, of the underlying causes of the slide in confidence.
This bout of financial turbulence is quite different from the one which tore through the financial system eight to nine years ago.