Stumbling Chinese shares regain footing
A little after 2 p.m. Tuesday, a roar broke out in Galaxy Securities’ steamy trading hall, one of the oldest and largest in China.
The blinking yellow-green numbers had changed to red, meaning the Shanghai stock market had moved into positive territory. It closed the day up 2.6%. Although the traders were upbeat, nobody may have been happier than the Beijing government.
Before Tuesday, China’s topsy-turvy stock market had fallen 15% in a week, including an 8.3% plunge Monday. The decline was triggered by a tripling of a stock-trading tax levied by China’s government, concerned about an overheated market.
The manner in which Beijing imposed the higher taxes last week -- announcing the change at midnight, just two days after denying it would do so -- was taken by investors to mean that the government would do anything to beat down the market.
As a result, people panicked and sold in droves. As losses mounted, so did their anger, underscoring the risks that the government faces as it tries to manage what many believe is a stock market run wild by speculation.
If China’s stock market were to collapse, it would probably cause fallout in markets around the world. But it could also stir social and political upheaval in China, with devastating consequences for the nation’s Communist Party leaders.
Millions of retirees globally have staked their investments on the stock market, as have China’s new moneyed class and young professionals. Many investors hold unrealistic expectations and are quick to blast every move by the government they consider bad.
“The government must reach out” to investors, said Zhao Xiao, an economics professor at Beijing Science and Technology University who criticized Beijing’s tax policy shift as a “surprise attack at midnight.”
“Otherwise,” he said, “the government will have to face endless troubles.”
Rumors swirled Tuesday that the government would try to appease investors by reducing the tax and firing an official who may have been responsible for releasing the tax policy change. Though government officials didn’t comment publicly on the market Tuesday, the People’s Daily newspaper, the party’s mouthpiece, spoke out against malicious efforts to drive down the market.
Inside the gilded doors of Galaxy’s largest trading offices, which opened shortly after Shanghai’s stock exchange formed in January 1991, virtually all of the 450 seats were taken.
“I want to cut flesh now,” shouted Ma Lingmei, 55, using the Chinese term for selling at a loss. She gazed at the electronic board in front, while her puffy hands furiously turned stitches on a slipper she was knitting.
“Don’t sell it too soon,” hollered a man sitting next to her. “It’ll turn red. You wait, just leave it alone.”
Ma held on but complained that it was no use. Over the last week, she said, the market had swallowed half of her family’s $25,000 in stock investments. Like many others, Ma put her money into small, obscure companies, which had fallen much further in recent days than the composite index made up of large stocks.
“How can the country go well? The government sees you make money and their eyes turn greedy,” the former factory worker said, referring to Beijing’s tax hike. After years of a bear market, “We ordinary people finally get out of being trapped, and now it’s going down again.”
As Ma spoke, an elderly man with thick glasses walked toward her. Flailing his arms, he shouted above the cacophony: “If stocks rise, the government gives us taxes.... Isn’t that cheating ordinary people?”
Sitting in the front row, Lu Yonggen’s bloodshot eyes stared at the blizzard of stock numbers flashing a few feet in front of him. Lu said he was still up big for the year. But the retired machinist, who had been investing in the market since its inception and through two grueling bear markets, said he sensed that things had turned bearish. One thing hasn’t changed over the years, he said.
“I always have a feeling that the government is manipulating the market,” he said.
Three floors up, a 43-year-old man who gave his last name as Lu emerged from an air-conditioned VIP trading suite, reserved for those whose investments exceed 1 million yuan, or about $130,000. Lu said he and his partners had spent the day buying but complained about the sly way the tax increase had been introduced.
“That’s not the way of a market economy,” he said. Then again, Lu added, China’s stock market isn’t really a market.
“It’s a government function. The market has always been led by the party,” he said. “That’s the Chinese characteristic.”
