China Crash: Government Reaction Worse Than Sell-Off

The sharp sell-off in Chinese stock markets hurt the state more than consumers - but the government's subsequent interference has done more lasting damage to households

Daniel Rohr, CFA 13 August, 2015 | 3:57PM
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The Chinese government's scramble to prop up its stock market in the face the recent mass sell-off could prove more damaging than the sell-off itself. Had Beijing not intervened, the sharp drop in share prices would have probably had a limited impact on the real economy.

$4 trillion market loss hits the state, not consumers'

But instead the government's actions cast doubt on its willingness to relinquish control in more important markets: credit and currency. Rather than proceed with the reform agenda, these actions risk a further build-up of excess capacity and debt in the economy, and undermine efforts to rebalance to a more sustainable growth model.

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Daniel Rohr, CFA  is a senior equity analyst at Morningstar.