China’s stockmarket intervention is a political “red-flag”

The Economist writes “Lost in all the drama about the (Chinese) stockmarket is that it still plays a surprisingly small role in China. The free-float value of Chinese markets - the amount available for trading - is a third of GDP, compared with more than 100% in developed economies. Less than 15% of household financial assets are invested in the stockmarket: which is why soaring shares did little to boost consumption and crashing prices will do little to hurt it. Many stocks were bought on debt. But this financing is not a systemic risk; it is just about 1.5% of total assets in the banking system. If economic stability is not in peril, why then the panic? The most compelling explanation is politics. The government has staked much credibility and prestige on the stockmarket. The sudden end to the rally is the first major dent in the public standing of the Xi-Li team. It shows that the Communist Party, powerful though it may be, cannot indefinitely bend markets to its will.” (VIEW LINK)