Salient to Investors:

Linda Yueh at Oxford University said:

  • The Chinese stock market is not very important to ordinary Chinese because at most only 50 million households invest in it, and they average less than 10 to 15% of their assets.
  • Retail investors follow the herd so volatility is endemic in the Chinese stock market. The Chinese stock market is still up on the year so could as easily rise further as fall further.

Dong Tao at Credit Suisse said:

  • Chinese government was complicit in the rising speculation in China’s stock market.
  • The Chinese economy depends more on bank lending than most developed economies so when the banks refused to lend over the last 3 years the government encouraged retail investors: however this diverted money from the real economy and back into the stock market.
  • Beijing cannot intervene in the market forever.

Kerry Brown at the University of Sydney said:

  • China is really defending making Shanghai the financial center of the future and the stock market the heart of China’s economic reforms. China wants to be an aspirational economy, not just the world’s sweatshop. China can tolerate the market collapsing, but not the idea that one of its keys to becoming an aspirational economy does not work.
  • The market collapse is not a massive blow, but raises many questions. Socialism with Chinese characteristics is a paradox.

Ning Wang at Arizona State University said:

  • The Chinese financial sector is one of the weakest links in their economy, and is still badly controlled by the government.
  • Since Mao, the role of the state has declined a lot, and consistently. More than 85% of Chinese believe they will be better off under a market economy and so endorse it. The game is not over and hopefully the Chinese government will learn from this.
  • A modern market economy needs the state to creates rules that are at least transparent and in line with the way the market works itself.

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