Chinese investors and observers are not optimistic about their government’s ability to rescue the country’s plunging stock market. Investors scrambled to sell of their remaining shares as the market rout continued today—the Shanghai Composite Index closed 5.9% lower while the CSI 300 fell by 6.8%. Almost half of all companies listed in the mainland had suspended trading.
Wang Yong, 29, a financing manager at a P2P lending company in Shanghai has lost 55,000 yuan (about $9,000) in both stocks and equity funds. His outlook is bleak on the government’s ability to stage a comeback for equities.
“The state fund can never compete with money from regular people,” Wang tells Quartz, referring to a 120 billion yuan investment in Chinese blue chip stocks, one of the government’s recent spate of measures to salvage falling shares.
The once widely held assumption that the Chinese government will always ensure the growth of the economy and its markets has now been shattered. Chinese investors, mostly mom-and-pop retail investors with little experience, piled money into the market on this belief, and at the government’s encouragement. They have lost over $3 trillion over the past few weeks; some have lost their entire life savings. Two investors have committed suicide.
Zhong Wei, an economist and professor at Beijing Normal University says government measures have, at best, only pulled the main indexes up in the last half an hour before market close, doing little to actually stabilize the market.
“A bailout needs unlimited liquidity, stabilized expectations and the commitment to protecting free trade,” he wrote in a column on Sina News. And Zhong says China does not fulfill any of these conditions. If things continue, he says, the only way out will be the complete closure of the market.
Calvin Tang, vice president at Vantage Capital, a Shanghai-based asset management company, believes government measures are counterproductive. At the moment, when stimulus measures push share prices up, investors just sell in order to cash out, causing prices to fall regardless, according to Tang. “It’s like a stampede. When one falls, everyone falls,” he says.
Moreover, Tang says the government is more focused on bailing itself out, via buying shares of state-owned companies while neglecting small and mid-cap firms as well as private tech companies. “[The government] will not save the market, but save itself,” he says.
On the popular messaging app WeChat, users commented on the mass suspension of trading by companies today by circulating a photo of Deng Xiaoping, architect of China’s economic opening who once encouraged the establishment of the Chinese stock market by saying. “Capitalism can have stock markets, socialism can too… Let’s resolutely try and if it doesn’t turn out well, just shut them down!”
