Implications of the fall of the Chinese stock market – lagranepoca

Both the Shanghai stock index and Shenzhen fell more than 30 percent in three weeks. In the photo, investors sit in front of a screen showing market movements in a securities company in Hangzhou, east China’s Zhejiang Province, July 8, 2015. (STR / AFP / Getty Images)

Using extreme measures, the Chinese government finally managed to stabilize the stock market crash that began in mid-June, during which stock indices, both Shanghai and Shenzhen fell more than 30 percent in three weeks .

While many investors began to show signs of relief, even expressing gratitude to the government to “save” the stock market and investing, the episode has a very different meaning to foreign governments and investors.

More importantly, it reveals that China’s stock market is still in a very early stage, and the inclination of the Chinese authorities to exercise control It is overwhelmingly strong. Many analysts and international media are beginning to have doubts about the future direction of economic and financial reforms in China.

In recent years, China has made great efforts to liberalize its market. Reform measures were implemented, such as the gradual introduction of Qualified Foreign Institutional Investors Renminbi (RQFII, for its acronym in English) to participate in the stock market and the launch of Shanghai-Hong Kong Stock Connect (equity Linking Shanghai and Hong Kong) last November that allows investors in each market to trade shares in the other market.

China has never renounced his aspiration to transform Shanghai into a regional financial center or even international.

However, the stock market crisis and drastic responses of the regime, including a ban on new IPOs, prohibiting major shareholders to dispose of their shares within six months and allow listed companies to suspend trade for no valid reason, undoubtedly damaged the confidence of international investors.

Unlike more mature securities markets, the stock market of China is dominated by retail investors who have little knowledge and investment experience.

To increase the participation of institutional investors, especially from the West, it will be important for growth and market development step. The pace of such reforms stalled definitely the consequences of the stock market crash.

Another important financial goals is the internationalization of China’s yuan. According to the International Monetary Fund (IMF), the opening of its capital account could help Beijing to meet IMF criteria for joining the currency basket of Special Drawing Rights, which greatly enhance the popularity and status yuan.

Again, a possible consequence in the turbulence of the stock market is the possibility that China will succeed in this effort could be compromised.

What lessons learned and choose which way the Chinese authorities will be the focus of international attention.