13 August 2015. PenzaNews. A sudden drop of the Chinese stock market levels was a big blow to the country’s economic and political stability, thinks Charlie Hore, journalist of Socialist Worker, in his article titled “Bubbles, bounces and busts in China.”

© PenzaNewsBuy the photo

According to him, after a high point in early June 2015 the stock markets of the PRC went down by over $3.5 trillion, or almost 15 times the value of the Greece GDP.

“Greece’s debts, and for that matter the British deficit, look trivial by comparison,” the author writes.

However, he points out that even the recent events did not push the market into an overall decline, as it still shows growth compared to February 2015 since the market almost doubled before the recent fall.

Charlie Hore reminds that every tenth Chinese citizen was involved in the stock market by early June, which constitutes nearly 90 million people, almost as much as the member list of the Communist Party of China.

“Many of [them] will have lost almost everything they invested. They include 20 million people who only opened share accounts in the last six months, and according to Isobel Hilton in the Guardian, ‘60 million of them did not finish high school – so mostly migrant workers and the poor in the cities’,” the author explains.

In his opinion, the Chinese authorities sought to boost economic growth through encouraging stock market participation, pushing people to use their savings against urgent needs and old age.

“[The government] earlier this year eased access to credit for buying stocks and shares, even allowing people to borrow against the value of their homes. The easy availability of online credit, albeit at very high rates of interest, further fuelled the boom, as did the government's active promotion of new share issues and Initial Public Offerings (IPOs),” the journalist writes.

He stresses the fact that Beijing used all means possible to contain the drop, a move some Western media sources called disproportionate: in particular, the Chinese authorities banned state-owned companies from trading and froze the shares of the most-traded companies, which affected 1,300 companies representing almost 40 percent of total market value.

Moreover, as the author points out, the Chinese media were instructed to discontinue reports, discussions, expert interviews and live coverage on the stock market for the time being and avoid using such words with negative subtext as “slump,” “spike” or “collapse.”

“[Beijing even appealed] to ‘patriotism’ by blaming foreign investors for the drop (in reality foreign capital accounts for only a tiny fraction of the Chinese stock markets),” the Socialist Worker reporter explains.

From his point of view, the Chinese authorities succeeded in halting the market decline, but remain cautious due to remaining negative mood and a general scare among small investors that may cause further decline as trading resumes.

“And this bubble has followed previous bubbles in the property market and in the banking sector, all of which have greatly increased the amounts of bad or dubious debt floating around in the Chinese economy,” Charlie Hore points out.

In spite of that, he concludes that the Chinese economy took the blow in stride and is still up and running.

“Although Chinese economic growth has slowed down to 7 percent a year from the high points of over 10 percent before 2012, it does now seem more stable than a couple of years ago,” the journalist thinks.

However, he suggests that the biggest consequences of the stock market drop will be experienced by political stability in the PRC.

“China’s new president, Xi Jinping, already engaged in a major campaign against official corruption, threw his political authority behind both the rise in the markets and the attempts to halt the slide, and his credibility will have taken a significant hit,” Charlie Hore notes.

According to him, the majority of affected population lives in cities that already experience the times of agitation.

“The numbers of strikes almost doubling in 2015 compared to 2014, according to the China Labour Bulletin. Last month there were also major protests over the construction of a hazardous chemical plant in the Shanghai suburb of Jinshan. Over 10,000 people marched over six nights just 40 miles from the city centre, and forced the local authorities to back down completely, to the point of claiming that the plans never existed!” the journalist stresses.

He also points out that the country’s leaders very rarely intervene in such events as they pose little threat to Beijing.

“Almost all such protests (outside Tibet and Xinjiang) are against local managements and local governments, as they are the ones with the power to make decisions. Protests very rarely target the central government, and this does make for a large degree of fragmentation – there’s no automatic identification with others fighting back,” the Socialist Worker reporter writes.

From his point of view, the largest threat to political stability in China lies in the fact that the stock market issues will inevitably place responsibility to the leaders of the country with the population that exceeds billion people.

“Much of the Western media […] doesn’t take into account just how scared China’s rulers are of the ruled. One very useful recent study […] quoted one businessman as saying: ‘China is different from other countries. In the West, it is the rich people who influence politics and the government fears the rich. Now, in China, it is the rich who fear the government and the government fears the poor. The poor have a high potential to threaten social stability and social order’,” Charlie Hore concludes.