2015–2016 Chinese stock market turbulence

By 8–9 July 2015, the Shanghai stock market had fallen 30 percent over three weeks as 1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent further losses.

[2] Publishing in 2024, academic Frances Yaping Wang observed that in contrast to the early 2016 speculation of an economic collapse turned out to be wrong and that the turbulence ended up far from a real crisis.

The Chinese government responded to 2008 recession with a stimulus package that would draw resources from both the public and private sectors in order to fund an unprecedented infrastructure build.

[17] Seeing the opportunity for a nationwide reinvestment into the economy through the stock market, the government developed a campaign that would entice every day citizens to trade – it was referred to as "Zhongguo meng" (中国梦), which translates to the "Chinese Dream".

First conceived and pushed by China's paramount leader and general secretary, Xi Jinping, the 'dream' was one of overall economic prosperity and an elevated international status.

As a result, momentum and rumors among the traders carried more weight than reason when it came to investing decisions, creating a trend of impulsive buying and overvaluation in the market.

However, in March 2010, China implemented a testing phase for their stock exchange in which 90 selected companies were authorized to be sold short and traded on margin.

These regulation changes led to significant increases in borrowing for the purpose of trading, and short selling became the most popular investing strategy among traders.

[20] To make matters worse, the CSRC also became a regulatory bystander, refusing to take action that would upset the political and social stability of the time.

This added to the flames of bad investing, allowing investors to continue pouring their money into companies that were underperforming and overvaluing shares that were essentially worthless on the books.

[23] In August there was speculation about the causes of the devaluation of the yuan and the changes in the Chinese economy in 2015, including the "growth in its services sector rather than heavy industry".

[9][26][27] On 8 October 2015 China launched a new clearing system developed by the People’s Bank of China (PBOC) – Cross-Border Inter-Bank Payments System (CIPS) – to settle cross-border RMB transactions and intended to "increase global usage of the Chinese currency", by "cutting transaction costs and processing times" and removing "one of the biggest hurdles to internationalizing the yuan".

[29] By October 2016, the Renminbi will be added to the special drawing rights currency basket, the foreign exchange reserve assets defined and maintained by the International Monetary Fund,[30] which includes the U.S. dollar, Euro, Japanese yen and pound sterling.

[32] In August 2015, Caixin Media – a closely watched gauge of nationwide manufacturing activity[33] – announced that the China Purchasing Managers' Index (PMI) had declined to 51.5.

[51] Forbes contributor Jesse Colombo contended that the measures undertaken by the Chinese government, along with cutting the interest rate, "allowing the use of property as collateral for margin loans, and encouraging brokerage firms to buy stocks with cash from the People's Bank of China" caused Chinese stocks to begin surging in mid-July.

He argued that in general, however, the outcomes of government intervention as it relates to the turbulence will, by its nature, be difficult to predict, but saying that in the longer term, the effect may be the development of an even larger bubble through creation of a moral hazard.

[61] In the week prior to Black Monday, the Dow Jones Industrial Average had fallen over concerns about the yuan, low gas prices, and uncertainty over the U.S. Federal Reserve's moves to raise interest rates.

[65] An article in the Guardian argued that "American commentators relentlessly push a "China-led slowdown" narrative, but the reality is that the US is a relatively insulated economy.

"[66] Some mass media outlets had alarmist headlines in August 2015, with The Guardian comparing the pattern of losses during China's Black Monday to the Wall Street crash of 1929,[67] and an article in The Mirror about Damian McBride, a former adviser to British Prime Minister Gordon Brown, calling on people to stock up on canned food because the coming crash would be twenty times worse than the financial crisis of 2007–08.

[69] George Osborne, Chancellor of the Exchequer of the United Kingdom, said that the Chinese stock market turbulence will not have a big impact on European economies.

[70] The Globe and Mail journalist Nathan Vanderklippe argued that "To understand the devaluation of the yuan and the changes in the Chinese economy today, look to the growth in its services sector rather than heavy industry.

[9][34] In comparison, in the United States the trading curb rule or circuit breaker was first applied in the 1997 Mini-Crash during the Asian Financial Crisis.

A spokesperson for the CSRC argued that the rules for the trading curb differed from those in the United States; in the U.S. the emphasis is on preventing systemic risk.

"[58] According to an article in The Economist—unlike most major markets—millions of individual investors dominate[14] the Chinese stock market, driving "more than 80 percent of trading on bourses in Shanghai and Shenzhen, versus about 15 percent in the U.S."[14][75] An article in Forbes claims that these "unsophisticated" Mom and Pop retail investors tend to "over-react", "mis-read signals", and buy and sell on speculative instincts.

[9] On 16 January 2016 Xiao Gang the head of China Securities Regulatory Commission defended the CSRC's crisis management of the "abnormal volatility in the stock market".

[76] Data from surveys compiled by the financial information firm, Markit Group showed that China's PMI was 48.2 in December 2015 down from 48.6 in November, 48.3 in October, September is 50.5 and 51.5 in August.

The slower manufacturing activity in the United States was blamed on the strong US dollar, a weak global economy, low oil prices and excessive inventories.

[77] In October 2015 Caixin China General Services PMI reported that "Chinese business activity [had declined] at its quickest rate since start of 2009".

[41] "In the group of non-energy commodities, metals experienced a broad-based drop on the weakness of manufacturing activity in China while agriculture prices were also generally down.

"Publishing in 2024, academic Frances Yaping Wang observed that, in contrast to the early 2016 speculation, predictions of an economic collapse turned out to be wrong and that the turbulence ended up far from a real crisis.