It is a sign of the severity of China’s stock market correction that the authorities in Beijing no longer seek either to thwart or deny the carnage. There is simply too much red on stock brokers’ screens for them to wish away.
The latest slide — an 8.5 per cent drop officially dubbed “Black Monday” — takes to almost a fifth the decline in shares since the renminbi devaluation on August 11. Worryingly for a country that has been encouraging the public to buy stocks that were until recently rising rapidly, the market now stands below its level on January 1.
Gone too are the days when the developed world could look on with unconcern at turmoil on China’s exchanges. Their fall is ricocheting around the globe, hitting shares and already-peppered commodity prices. London’s FTSE 100 index shed 4.4 per cent of its value, and many European bourses fell similar amounts. The Dow Jones index slid sharply at the opening, before rallying later.
发达世界对中国股市动荡漠然置之的日子也一去不复返了。中国股市本轮下跌影响到了全球，对股市和已经深跌的大宗商品价格造成冲击。伦敦富时100 (FTSE 100)指数下跌4.4%，许多欧洲股指也下跌了类似的幅度。道琼斯指数(Dow Jones)开盘大跌，不过后来有所反弹。
China’s initial reaction to the turmoil was less than impressive. Beijing sought to turn back the markets, pumping $200bn into a support operation, restricting selling and instructing pension funds to wade in and snap up unwanted shares. Having abandoned its attempt to treat the symptom, it must address with a surer hand the underlying malaise.
China’s economic challenges are immense. The country faces a sharp investment slowdown at a time when it is only part of the way into a long-term plan to rebalance the economy towards domestic consumption. Reversing track might be tempting were it possible. Unfortunately for the Chinese leadership, it is not.
Exports can no longer be the country’s saviour. Representing some 15 per cent of the global economy, China is too large to trade its way to glory. Nor would it be wise to revert to the investment-led model that has powered the economy since the financial crisis. Such high levels of capital investment are both an inefficient model of development and one inevitably prone to sudden stops.
Beijing does have space to respond. China is not a debtor on its uppers. It is more in the position of a liquidating creditor. Nonetheless, investors will watch closely for signs that its market distress signifies a wider slump in demand.
While Beijing should not panic, the government needs to think hard about how it might boost consumption were that to prove necessary. It should be public about its conclusions, however much this may go against the grain. Markets and the wider world need confidence in the existence of a plan, given the absence of the monetary and fiscal tools common to market economies.
China is not alone in facing hard choices. The same can be said for the US Federal Reserve. The market slide comes as the central bank prepares to decide whether to raise interest rates, a move that many had predicted might happen next month. Although the Fed should never target asset prices, the volatility strengthens the hands of those arguing for delay.
Rebalancing China and weaning the world off rock bottom interest rates were always going to be delicate undertakings, and so they are proving. Such a sweeping correction is unnerving, but so long as it does not infect the real economy, there are some benefits in more market volatility.
It is a reminder that there are risks in investments and it is not the job of central bankers to protect the value of people’s assets. As the Chinese public is learning, and the developed world may have forgotten in recent years, this is part of normality too.