Turbulence in Chinese Stock Markets. Occurrence, Interventions, After-Effects

Bull markets, bear markets, boom and bust, speculative bubbles are frequent phenomena with stock markets. All the more so with imature stock exchanges such as China’s, where unwary investors, lured by the prospect of quick and easy gains, trade instinctively, in accordance with the prevailing market sentiment, so that the ups and downs in securities values may be ample, unexpected and dangerous. Besides, the repeated interventions of a government which aims at tightly controlling the functioning of such markets may generate abrupt responses, which risk to get out of hand. Such an episode took place in June-July 2015, when, following 12 months of exuberant growth, Chinese stock markets, which were already in a bubble, started a sudden descent, generating panic among investors, thrills and worry amid foreign analysts. This paper radiographs this episode, looking at its causes and at the risks entailed for both the domestic and foreign markets, trying to explain the seemingly unjustified and excessive interventionist reaction of the government to the market-inflicted price corrections and to shed light on the expected consequences of the stock market fall on domestic consumption and demand for imports, on foreign demand for Chinese exports, as well as on the economies of the partner countries and the global economy as a whole.