But perhaps there is a simpler explanation for Beijing’s extraordinary efforts to support equities: It created this bull market. Keeping it going is now seen as a test of the Communist Party’s strength, and possibly even its legitimacy.
If you created the boom, arguably that also puts you on the hook for the bust. For the government, this means the fallout will not just be economic, but could also be political and social too.
Since last year, stocks had been cajoled higher through a mixture of cheerleading from state media and accommodative policy measures. As the People’s Daily, the official mouthpiece of the party, declared earlier: “4,000 points is just the beginning of China’s bullish market.”
The very visible hand of the state was involved in the systematic underpricing of IPOs and in steering margin financing towards equities for the first time. All this prompted the opening of 30 million new trading accounts this year by novice investors — many on margin — promised easy riches by their government.
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