China's Stock Market Crash

Image Source - KingWorldNews

Stock markets in China have taken a plunge, causing distress to private investors and governments across the world, because its sheer share in the global economy. The following indications of the impending downfall should have been paid more attention to:

•  Stocks were rising at a pace way faster than the economy itself.

• The two main stock exchanges of China: Shanghai and Shenzhen, which had grown weak over the past years, surprisingly took off this year, and reported plenty of buying, selling and high profits. Share prices of newly listed companies spiraled upwards within months of their IPO.

Further, instead of regulating the market, the Government inflated the bubble by interfering with the financial systems, by selling equity shares of debt-ridden state enterprises. The World Bank had reported these happenings, but was met with opposition by the Chinese Government.

When the shares prices actually began collapsing, the state cut interest rates, suspended new public offerings and prohibited share sales by 5% holders, and ordered brokerage houses to start buying into the market themselves.

The primary reason of the fall is the fusion of a pure socialist economy with a capitalist economy, leading to a clash in the values and operations of the systems, and this is what triggered off the drama. This amalgamation has no precedent, and there is no set guideline to be followed, which adds to the dilemma. China has to take major steps to stabilize its economy, and has to act fast to prevent the global economy from being wounded.

- Nicolette Francis ( XIME-Bangalore : PGDM 2015-17 )