BEIJING — Another day, another stock rout. And the Chinese government can’t seem to stop the slip.
Chinese stocks sank again Tuesday, with the Shanghai Composite dropping 1.7 percent, on top of Monday’s 8.5 percent tumble, and the Shenzhen Composite losing 2.2 percent. The volatility ended three weeks of relative stability after authorities stepped in to shore up the market, and it calls into question their ability to control a stock boom gone bust.
At stake is not just money — a lot of it — but something equally as dear to the Communist Party: faith in the system. The party leaders’ monopoly on power is premised on a vision of national rejuvenation and prosperity — what President Xi Jinping calls the “Chinese Dream.”
The consequences of the continuing crash are likely to be as much political as economic — and potentially no less powerful.
The market here doesn’t drive the economy to the extent that it does in the United States, but weakness in stock prices is nonetheless a sign — of disorder, pessimism and a failure of control. And that sign is flashing red at the moment for the millions of small investors who bet on the market with confidence and are now losing real money.
Contagion is the threat, and if a disgruntled and alarmed population turns bearish in general on the future of China, and on the country’s leadership, the effect could be to push the country into a genuine economic slowdown — one that would inevitably put a drag on China’s principal trading partners, including the United States.
Growth has already been easing up, and that may have induced the authorities to start championing stock buying in the state-backed media, predicting bull markets with the same solemn authority they use to predict steel output or GDP.
“Prior to what happened yesterday, some investors might have believed that the Chinese government can make anything happen,” said Victor Shih, an associate professor at the University of California at San Diego’s School of Global Policy and Strategy.
Not, perhaps, anymore.
In China, months of market mayhem have left investors reeling and the country’s leaders trying very hard to keep up.
For the first half of this year, the country’s stock market soared — encouraged by regulations that made it easier to buy stocks, and egged on by upbeat editorials in the state-controlled media. Investors piled in.
Many of the people who flocked to join the rally knew little about financial markets but had reason to believe they were in good hands.
Vector Yang, a 31-year-old human resources professional from Shenzhen, in Guangdong province, entered the market in late 2014, armed with nothing other than stock tips from former schoolmates.
“I didn’t really understand what the Shanghai or Shenzhen stock index meant,” he said Tuesday, but he also did not want to miss out.
After he doubled his money in about six months, he said he thought, “Maybe financial markets are not as scary as everyone says.”
Then in June, the Shanghai and Shenzhen markets dropped precipitously, losing a third of their value. Yang lost all of what he had made, plus some principal.
Clearly spooked, Chinese officials took exceptional measures to prop things up, including forcing state-owned enterprises and funds to buy shares and threatening to go after short-sellers.
This week’s dramatic fall brought fresh assurances. The China Securities Finance Corp., a regulator, vowed to buy stocks to stabilize the market. Authorities said they would investigate Monday’s sell-off.
The market dive helped drag down global markets Monday, but the fallout eased in the next round of trading. Other Asian markets mostly held their ground Tuesday, and exchanges in Europe and on Wall Street were mainly higher.
The Chinese government’s newest efforts, like the last ones, may bring a temporary reprieve but are likely to amount to a short-term fix, experts say.
“We do not have a long-term stabilizing mechanism yet, and until we do, we cannot avoid volatility,” said Zhao Xijun, deputy dean of Renmin University’s School of Finance. China has daily limits on individual stock-price swings, but it does not have a stabilization fund such as the one South Korea, among other Asian countries, has created. Such a fund — reliant on contributions from major financial institutions — can be used to dampen volatile stock-market swings and provide liquidity when the system is under stress.
The lack of stability here means more anguish for people such as Yang, who says he feels “knocked unconscious” and is losing hope.
“I think maybe the government can do something, but I don’t know what it can do or to what extent it can help,” he said.
Zhao predicted that state authorities will do whatever they can, because they must.
“The Chinese government cannot just leave 80 or 90 million investors to die,” he said. “It’s not just the stock market that’s the problem. There’s also the problem of people, of social stability, and for the government, it’s also a question of credibility.”
Gu Jinglu, Liu Liu and Xu Yanjingjing contributed to this report.