Impact of Chinese Market Decline

Jan. 4, 2016 The market decline indicates an underlying lack of confidence in the economy and in the state’s regulatory regime.

Briefing

|January 4, 2016

The Chinese markets declined precipitously today: the Shanghai composite index by 6.9 percent, the Shenzhen Composite by 8 percent, and the CSI 300 index by 7 percent. The reason for the decline is generally given as the pending release of controls on share trading by major institutions. This has locked up a large number of shares which should be released by the end of the week. The fear of increased supply, which was known to be coming, finally penetrated the Chinese markets, resulting in the crash and the triggering of mechanisms that suspended trading after this level of decline was reached.

It is important to bear in mind that the controls that are being lifted later this week were put in place in response to prior sharp declines in the Chinese markets. It is also important to understand that the Chinese markets do not play the same role in the Chinese system as Western markets. Western markets are a prime mechanism for business acquiring capital and given their breadth are a m

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East Asia

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China

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