In Tony’s blog, he discussed about the huge downfall in Chinese stock market and concluded that Chinese government gained billions of profits from the inexperience individual Chinese investors. Conversely, I would argue that the actual winner is not the Chinese government and this event was actually caused by a change in the government policy.
Before the event happened, individual investors were allowed to leverage their money at a high ratio (at most 1:10) from the banks and were encouraged to invest money into the stock system by those using borrowing funds. The original plan was to stimulate the economy and also help more most of the state-owned manufacturing companies recover from the recession. However, as growingly numbers of citizens leveraging their saving 5 times or even 10 times more than their original fund entered the stock market, Chinese stock market underwent an unexpected boost. The Shanghai A Index, as an example, soars up to 5178.19 points which reached a high in the past 7 years. Since then, the government started to concern about the serious consequence brought by the endless boost and hence it prohibited the policy allowing individuals leverage fund at high ratio which finally leaded to the huge downfall in the stock market. As a result, individual investors and most of the firms suffered huge lost because of the downfall in stock market caused by the panic investors. The government, inevitably, gave up a huge cost in interfering the market in order to stimulate the falling stock market. This event reflects that the government should not have too much intervention in the market and a market balanced by merely buyers and sellers will be sustainable and healthy.
Reference
https://blogs.ubc.ca/tonychen2019/2015/10/04/investigating-the-chinese-stock-market-downfall/
