[Red] China’s Market-Intervention Folly

Wall Street Journal ^ | Burton G. Malkiel

[BenLurkin]

The biggest drop in Chinese stocks in eight years Monday is another sign that Beijing’s efforts to prop up prices have failed. Moreover, the interventions themselves have made China’s equity markets more volatile and damaged their credibility in the long run.

To stabilize stock prices, Beijing has employed numerous techniques, including suspending trading for a time on well over half of listed A-shares. Short sales were banned, and major shareholders were prohibited from selling. New initial public offerings were disallowed.

China needs more professional participants in its equities markets. But why should institutions buy when the government can control if and when they can sell? And ordering state-owned enterprises and brokerages to buy stocks with borrowed money to shore up prices only reinforces the notion that the market is rigged.

...

When President Xi Jinping took office in March 2013, his two main goals were ending pervasive corruption in the economy and giving markets a “decisive role” in allocating resources. Progress on these two fronts, he said, would modernize the economy and lead to “the great renaissance of the Chinese nation.”

Mr. Xi recognized that too much economic activity was controlled by inefficient, corrupt and complacent state-owned enterprises and that (at least partial) privatization should be encouraged. By subjecting their ability to obtain financing to market forces, the companies could become more accountable and efficient, and domestic innovation could be fostered. Selling stakes in locally owned enterprises could also help heavily indebted local governments pay down debt.

But reducing the government’s dominant role in the economy can only be accomplished by free and well-functioning capital markets. Unfortunately, recent events suggest that the Chinese government is in danger of reverting back to its traditional command-and-control approach to financial markets.

[Raycpa]

You don’t need to nationalize the companies if you control the market.

[JustTheTruth]

And where is the Wall Street Journal on the subject of the U.S. Federal Reserve’s interventions in bond markets and equity market index fund purchases to prop up those markets?

Are they just opposed to clumsy central planning market manipulators, or are they also opposed to other (U.S.-based) central planner market manipulations, so long as the interventions seem to succeed in keeping air in the bubbles?