China’s stock markets continue to stumble, despite the massive stimulus that the government has unleashed to prop them up. The Shanghai benchmark index fell by 1.23 percent Tuesday, after closing down slightly Monday. The index has fallen by nearly 40 percent from its mid-June peak.
In some ways, the slide isn’t surprising—after all, Chinese stocks were trading at extremely rich valuations before they started to fall, even as signs emerged that China’s economy was slowing.
The Shanghai Composite Index
China’s retail investors poured money into the stock market earlier this year because they didn’t have many other choices (they’re all but barred by Beijing from investing outside the country). The government helped fund the rush to equities by loosening up credit in an attempt to offset a growing bad-debt problem.
Since the markets’ fall, China’s stock prices look much more rational—but government officials have been working overtime to lay the blame for the drastic correction on almost anyone but policymakers in Beijing. These are the main scapegoats so far …
The Journalist and the Warlord
Wang Xiaolu, a reporter at the respected financial magazine Caijing, confessed on August 31 during a national broadcast on CCTV that he had written a report about the stock market “based on hearsay” and “my own subjective guesses.” His lengthy article, which ran on July 20, examined how poorly the government’s expensive stock-market stimulus was working to prop up prices, and predicted, in a paragraph buried deep in the article, that officials could be expected to cut back on this stimulus in the future.