China’s decision to halt intervention in the stock market this week reflects a debate at the heart of the country’s leadership on the role of markets in the world’s second-largest economy.
Authorities have refrained from intervening so far this week as the Shanghai Composite Index tumbled at the fastest pace since 1996, according to people familiar with the situation.
Some officials argue that market losses will have a limited impact on economic growth and the costs of support are too high, said one of the people, who asked not to be identified because the deliberations are private. Officials who back the rescue effort say tumbling shares pose a risk to the banking system, the people said.
President Xi Jinping’s government is trying to balance a pledge to loosen its grip on markets against the desire to ensure financial stability and maintain confidence in the ruling Communist Party as economic growth slows.
The Shanghai Composite sank 15 percent over the past two days, extending a $4.5 trillion rout since mid-June that has shaken confidence among equity investors around the world.
“Government intervention has dropped substantially,” Michelle Leung, the chief executive officer at Xingtai Capital in Hong Kong, said in e-mailed comments on Tuesday. “The reform-minded camp within the government that favors letting the market do its work seems to be driving decision making right now.” (Bloomberg)