The farce that the Chinese equity market has turned into has been well documented, though one rich irony is perhaps worth repeating: that the government’s attempts to rescue the market are what precipitated its failure.
As Medley Global Advisors, a macro research service owned by the FT, has pointed out, while share prices were already falling ahead of the July 4 weekend package of intervention measures, there were no liquidity problems evident at that point. Buy and sell orders were going through normally and margin calls were working.
It was only after Beijing ordered — or encouraged — the mass suspension of individual stocks, banned short selling (or indeed any selling by state-owned firms or large holders), raised margin requirements, pumped in central bank funds and started bullying brokerages that the markets froze. This kind of manipulation may work in the very short term, but it is hard to believe that China’s bubbling share prices will not continue to fall as soon as they are once more allowed to do so.