“Rainbows always appear after rains,” wrote the People’s Daily newspaper this week to reassure Chinese stock market investors after some $3tn was wiped off the value of all listed companies over the past three weeks. But such rhetorical flourishes, along with repeated official pledges that Beijing has the power to maintain capital market stability, cut little ice. On Tuesday, stock prices fell again, with the Shanghai Composite index losing 1.3 per cent and the technology company heavy Shenzhen Composite falling 5.3 per cent.
Stock price slumps, of course, are not new. During the crash that started in 2007, the Shanghai index suffered a peak-to-trough fall of 70 per cent. Nevertheless, this rout is distinctive in three significant respects.
It is the steepest plunge since 1992, with the Shanghai and Shenzhen indices dropping by one-third since the sell-off began on June 12. It also comes against a backdrop of much weaker GDP growth and when Beijing is midway through capital market reforms that are groundbreaking and delicate. Lastly, it reveals fragilities at the wellspring of Chinese capital as Beijing launches ambitious overseas development finance initiatives such as the “One Belt, One Road” programme.