China’s market has seen $2.7 trillion loss
Huge downturn poses added risk to global economy
HONG KONG— Chinese shares have shed more than a quarter of their value in three weeks, posing a new risk to a global economy already grappling with Greece’s difficulties in repaying foreign loans and its possible exit from the euro.
About $2.7 trillion (U.S.) in value has evaporated from the Chinese stock market since it peaked on June 12.
That is six times Greece’s entire foreign debt, or 11 years of Greece’s economic output.
In an attempt to keep share prices aloft, China’s government has taken several steps: cut interest rates yet again, threatened to punish rumourmongers, allowed the national pension fund to buy stocks and even warned it will investigate short-sellers who are gambling that the market will crash.
The faltering of these measures has put an embarrassing dent in the halo of unruffled supremacy around President Xi Jinping of China.
Over the weekend his government doubled down again. Rolling out further initiatives in hopes of forestalling another market rout on Monday, 21 brokerages agreed on Saturday to set up a fund worth at least120 billion renminbi ($19.4 billion) to buy shares in the largest, most stable companies and to stop selling shares from their own portfolios.
But some experts said the moves might not be enough to stop the hemorrhaging of money from the stock market, particularly given that $105 billion in shares changed hands in Shanghai on Friday alone.
“If it’s only 120 billion renminbi, to be honest, it’s too small,” said Hao Hong, chief strategist at the Bank of Communications International, the global finance unit of China’s fifthlargest bank.
On Saturday evening, China’s two stock exchanges — in Shanghai and in Shenzhen, bordering Hong Kong — issued notices suspending initial public offerings until further notice, even for companies that already had provisional approval to list their shares. On Sunday, the government brought in the central bank, the People’s Bank of China, and an investment arm of the country’s sovereign wealth fund to support its efforts.
The China Securities Regulatory Commission, which governs the stock markets, said the central bank would financially support the statecontrolled China Securities Finance Corp. to “enhance its capacity to safeguard market stability.”
In addition, China Central Huijin Investment — a company owned by the country’s sovereign wealth fund that usually invests in banks and other financial institutions — said on its website that it had recently bought into investment funds traded on the stock exchanges and would continue to play a role in “market operations.”
“This is probably the most public and obvious instance where the government’s omnipotence has been challenged,” said Victor Shih, an associate professor at the University of California, San Diego.