Who Blew Up China’s Stock Bubble?

In China, the invisible hand of the market sometimes needs help from the iron fist of the state. That’s certainly true after a meltdown vaporized $3.5 trillion in the value of shares traded on the Shanghai and Shenzhen exchanges.

President Xi Jinping’s government isn’t being subtle in its campaign to reflate the bubble it had a big role in creating. The government has suspended initial public offerings and eased rules on margin loans, even allowing investors to use their homes as collateral to borrow money to buy stocks. On June 27, the People’s Bank of China cut its benchmark interest rate and the amount of reserves certain banks are required to hold. Days later, it offered financial support to a group of 21 brokerages that have pledged to buy 120 billion yuan ($19.3 billion) worth of shares and hold them for a year. On July 8, China’s securities regulator banned major company shareholders (those with stakes exceeding 5 percent), corporate executives, and directors from selling their shares for six months.