15 July 2015

What China’s nerve-wracking stock market looks like from inside the country

By Ana Swanson 
July 10 2015

An investor checks an index of China's stock markets on a screen at a brokerage house in Beijing on July 7. (Wu Hong/European Pressphoto Agency)

"I was just at KFC eating chicken and looking at stocks, and a beggar came in with outstretched hands. I gave him a chicken wing to eat. He sat down beside me and spouted off some impressive advice about the long-term moving averages of KFC and McDonald's. 'This stock is going to rise,' he predicted.

I was shocked. 'You understand that?' I asked him.

The beggar replied, 'If I didn’t know that, how would I have gotten where I am today?' "

Many jokes like this one are now circulating on Sina Weibo, China's version of Twitter, about the country's notoriously volatile stock markets. Chinese stock markets surged 200 percent over the last year, lost nearly one-third of their value in the last month, and then rebounded strongly in the last few days — leaving investors with a range of emotions including discouragement, suspicion and cautious optimism.

The markets have been giving Chinese investors panic attacks all week, with Shanghai falling 5.9 percent on Wednesday before bouncing back up on Thursday and Friday. More than half of all stocks on the markets have been suspended to dampen investor panic.

That sentiment was on display on Chinese social media sites. Users of the most popular services — Weibo and Tencent's WeChat, which is like a souped-up version of the American mobile chatting app WhatsApp — posted some positive comments after government measures boosted the markets on Thursday. However, many people also posted many wry jokes about the market and veiled criticism of the government.

China blocks foreign social media sites like Twitter and Facebook inside its borders, a policy that has allowed its own domestic versions of the services to grow. The government censors posts on social media, but somewhat selectively. One study by researchers at Harvard University in 2013 found that censors typically allow some criticism of the government, instead focusing their efforts on posts that might incite collective actions, like riots, political organization or demonstrations. Another collection of deleted social media posts by the China Media Project shows that censors have recently focused on deleting posts that criticize government officials by name.

Information from Freeweibo.com, a site created by an online activist group called GreatFire, shows that censors have been removing posts about the stock market from social media.

"Has Chinese-style financial crisis arrived?" asked one deleted post. "The Chinese stock market is too dirty," said another censored poster, who was retweeting an article on the differences between the Chinese and American stock markets. "Chinese IPOs need approval, U.S. IPOs do not ... in the long run, the U.S. market is an accelerator for wealth creation, innovation and entrepreneurship, while the Chinese market is the perfect mechanism for interest groups to repeatedly ransack investors' hard-earned money," the article says.

The opinions on Chinese social media sites should be taken with a grain of salt — as on any social media site, posters may alter their identities or have hidden motivations. In addition, the Chinese government is widely known to sway public opinion by employing Internet commentators, a group that is popularly dubbed "the fifty cent party," after the payment they reportedly receive per post. But in general, social media still provides an informative window into public opinion in a country where commentary is highly censored.

Many of the most popular posts about the stock market were jokes — though some hit a little too close to home to be that funny. For example, this one, which describes the experience of some people who have found stocks to be a more profitable activity than working in China's slowing economy:

“When the economy is doing well, the stock market drops. When the economy is doing poorly, the stock market shoots up. It seems like when the economy is doing well, we all go to work and earn money. When the economy is doing poorly, we all gather in the village entrance to gamble,” the post says.
Chinese state media, waving the red flag

The market's bull run seems partly to be a product of government intention — the government changed regulations to allow investors to buy stocks with borrowed money and open multiple accounts in the last year. It's also partly a product of bigger economic trends — the property market, where Chinese traditionally store their wealth, slumped in the last year, leaving people eager for other profitable investments. And it's partially a product of mass psychology, with many new investors piling into the market to avoid being left out.

A survey last year showed that that two-thirds of Chinese investors haven’t completed high school, and many people still trade on tips and rumors gathered from friends and neighbors. In Shanghai, for example, thousands of people are gathering at street stock market salons from the early afternoon until late in the evening to exchange tips and information, according to domestic media.

Since share values began to fall in mid-June, the Chinese government has jumped in repeatedly to rescue the market, cutting interest rates, pausing initial public offerings, and allowing pension funds to invest more in stocks, among other measures. It also used a state-owned company to lend $42 billion to 21 brokerages so they could purchase blue-chip stocks.

And the government sent out many rah-rah messages about the stock market through China's state-owned media. State media also reported that the government had launched an investigation into cases of people "maliciously" shorting blue-chip stocks.

Not all media in China are state-owned; some are private. But all media companies occasionally receive directives from China's propaganda ministry on what they should and should not publish. The state-owned media companies, including People's Daily, China Daily and Global Times, are viewed as direct mouthpieces of the government.

State media played a prominent role in stoking the stock market bubble in the first place. As David Wertime of Foreign Policy notes, Xinhua published eight articles on the stock market in a space of three days in early September, and in March, People’s Daily issued a three-article series, “A Share Volatility [Is Part of] a Slow Bull; [Index] Expected to Challenge 4,000.”

Directing the stock market may seem like an odd role for official media, but Barry Naughton, a professor of international relations at the University of California at San Diego, explains that it is a product of state media's desire to support the administration of Xi Jinping, the president of China and the secretary of the Communist Party.

"Chinese official publications definitely applauded the run-up to the stock market, and they were allowed to portray it as one of the channels that was contributing to greater wealth and to Xi Jinping’s China Dream," says Naughton, referring to Xi's plan to restore China to its historical wealth and glory.

Naughton says Xi's administration has been marked by a deep bifurcation — pursuing some serious economic reforms, while also, at the same time, giving the propaganda and public security apparatus "full license to recreate some of the worst aspects of the Communist Party system."

"That was incredibly irresponsible. It fueled the bubble at the worst time," he says. "And it meant that the regime was on the hook: When things started to correct, there was a sense among the political leaders that this is really bad, not just for the pure economic reasons, but because it presented a challenge to the official narrative of Xi Jinping’s being the face of a new, more successful and more confident China."

A few voices at state-run media have been more critical: "Government cannot be market's babysitter," read an opinion piece in the state-run newspaper Global Times on July 4 that concluded "The future of China's stock market lies in further marketization, not a 'policy bull.' "

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