Global Economic Crisis

Monday, July 27 witnessed the largest fall in share prices in major Chinese stock markets, especially the Shanghai Composite Index, in a decade. The fall of more than eight percent was followed on July 28 by a further drop in China’s stock market by 1.6 percent. These declines come after the massive intervention in the stock market by Beijing, following significant losses in equity values a few weeks ago.

Having frozen much of the market, and injected massive cash allotments into listed shares, amplified by the China authorities compelling companies to purchases stocks, while forbidding the sell-off of shares in many cases, Beijing had thought the problem had been solved. As the past days show, however, central government intervention in the equity markets only temporarily stalled the deflating of this large Chinese asset bubble.

The volatility now existing in China’s stock markets illustrates the overall fragility of much of the Chinese economic model and its opaque financial underpinnings.