The Chinese government’s efforts to stabilize the country’s stock market, which has seen a $7 trillion rout, are proving ineffective. Investors are skeptical that President Xi Jinping can use the same strategies that worked in 2015 to address the current market crisis.
What Happened: The Chinese government has taken emergency measures to support the plunging stock market, such as targeting short-sellers and freeing up cash for banks. However, these actions have not been sufficient to address the deeper issues at play, Bloomberg reported on Thursday.
On Wednesday, China removed its market chief, Yi Huiman, in a move that analysts say reflects a preference for tightening administrative controls over addressing the economy’s fundamental problems.
“The real reason why this time is different is the narrative for economic growth has changed,” said Fang Rui, fund manager at Shanghai WuSheng Investment Management Partnership. “We are now at an inflection point unseen in the past decades.”
“The shuffle demonstrates that the political impulse remains to tighten administrative controls rather than address fundamental problems facing the economy,” Eurasia Group analysts wrote in a note after the surprise shake-up. Rather than helping, they wrote, “it entrenches the sense of malaise and weighs on confidence.”
Despite these measures, the market turmoil is persisting, leading to criticism of Xi’s government among the public and investors. The upcoming Lunar New Year break is adding pressure to resolve the crisis, as millions of small investors prepare to meet with their families.
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“Market interventions cannot work over time unless underlying drivers are addressed,” said Brock Silvers, managing director at private equity firm Kaiyuan Capital. “Recent policies all seem to be treating the symptoms rather than the illness.”
Unlike in 2015, China’s current economic slowdown is occurring in a changed policy landscape. The government is hesitant to rely on significant stimulus measures, and top leaders have indicated a shift towards high-quality growth and away from the debt-fueled property market.
Why It Matters: The recent market turmoil in China has been a cause for concern, with analysts warning that urgent action is needed to address the crisis. Despite the government’s pledges of support, the market rout has continued, with small-cap stocks particularly hard hit.
The U.S. Treasury Department is also sending a high-level delegation to Beijing for discussions on China’s economic policies and practices amid significant economic instability in China. A team of five senior officials from the U.S. Treasury Department is set to meet with their Chinese counterparts this week. The primary focus of the discussions will be China’s trade strategies, particularly its use of non-market economic practices and industrial overcapacity
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