Chinese authorities on Monday arrested citizens for spreading so-called ‘rumors’. A portion of the nearly 200 include people who circulated stories online about the severity of the country’s stock market woes, according to Chinese state controlled media on Monday. Could this mean the country’s economic collapse is more serious than China is admitting?
The official government-run Xinhua News Agency announced that 197 people have been punished in a special campaign. Included in these so-called ‘rumors’ were stories of Chinese stock brokers committing suicide rather than face a pending economic crash.
The fear that has gripped financial markets this month is a stark one: That China’s economy might be slipping into a decline that could persist for years.
A series of bungled decisions have escalated doubts about Beijing’s economic stewardship. The skepticism is rising just as China is pursuing one of the most daunting transitions in modern economic history — from overheated growth, driven by exports and often-wasteful investment, toward slower and sturdier growth fueled by spending from an emerging middle class.
The leadership’s miscues have multiplied, starting with its handling of the stock market. To try to cushion the pain from a slower economy, the government deployed state-run media to promote stocks for inexperienced individual investors. The hope was that Chinese companies could issue shares into a rising market and use the proceeds to finance growth and shrink their heavy debt levels.
Untethered from economic reality, Chinese stocks took wing. The Shanghai Composite Index rocketed 150 percent in the year through mid-June, propelled in part by individuals who poured money in, often on borrowed funds, confident that their government wouldn’t steer them wrong.
On June 12, the bubble burst: Shanghai stocks have since tumbled 37 percent.
The Dow Jones industrial average has lost nearly 1,000 points since China’s surprise move to devalue its currency Aug. 11. That step, in part an effort to align the yuan with market forces, was also seen by investors as a desperate bid to fuel exports in a faltering economy.
“The incredible faith in the Chinese policymakers has been shaken,” says Ruchir Sharma, head of Morgan Stanley’s emerging markets equity team.
The Associated Press contributed to this story