The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2020 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

China faces a stock market breakdown

China's economy is humming along in top gear but its domestic securities markets remain stuck in neutral. As the central government continues to struggle with financial reform, losses mount and systemic risk increases.

Meddling in the markets

feature-08-01.jpg

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 invest in. There's a disconnect between the market and what's going on in the economy."

China's domestic stock markets need fixing. Their problem lies in the history behind their formation (see box). After years of exploiting the exchanges as a source of capital for creaky state-owned enterprises, maintaining share prices at unrealistic levels and incessantly manipulatinng the market, the government has succeeded in creating domestic stock markets that are rigged, corrupt and dysfunctional.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree