China faces a stock market breakdown

Meddling in the markets

EVEN IN THE face of the current slowdown, China's annual GDP growth is motoring along at about 8%. So why are China's stock markets drifting listlessly? The two domestic securities markets, in Shanghai and Shenzhen, have barely moved in three years. Their combined market capitalization, officially some $500 billion and second in size in Asia only to Japan's, is in fact less than $200 billion when account is taken of what is actually tradable and not state-owned. Even that valuation might be generous. The country's stock markets are mired in corruption, dominated by moribund companies and manipulated by government and speculators alike.

Fraser Howie, co-author of Privatizing China – the stock markets and their role in corporate reform, elaborates on this China conundrum. "You can be bullish on the Chinese economy – GDP growth," he says. "But that tells you nothing about what to...