Experts Question CCP’s Stimulus as China’s Stock Market Plunges

China’s stock market plunged on Oct. 9, after a sharp rise in late September induced by the Chinese communist regime’s stimulus policies. The indexes of China’s three major exchanges: Beijing, Shanghai, and Shenzhen, continued to fluctuate on Oct. 10.

China’s benchmark CSI 300 index—the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange—closed down 7.1 percent, marking the biggest single-day drop since early 2020 when the COVID-19 pandemic broke out.

Nearly 5,000 stocks on Shanghai, Shenzhen, and Beijing’s stock markets fell. More than 3,000 stocks fell by more than 9 percent, and 854 companies hit the daily loss limit.

The Shanghai Composite Index fell 6.62 percent, the Shenzhen Component Index fell 8.15 percent, and the ChiNext Index fell 10.59 percent.

China’s central bank announced on Oct. 10 before the stock market opening the immediate implementation of its “securities, funds, and insurance companies swap facility” to encourage institutions to invest in the stock market. In response, the Shanghai Composite Index rose nearly 3 percent, once hitting 3,350 points, but fell again in the afternoon to 3,301 points at close.

Since late September when the Chinese regime poured 800 billion yuan (about $113 billion) into China’s capital market, spurring a sharp rise in stock market, major funds in the Shanghai and Shenzhen stock markets began to flee.

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According to Chinese media, a single-day net outflow of 169.8 billion yuan (about $24 billion) was recorded on Oct. 8. Over 100 companies have announced plans to reduce their holdings, and more than 30 listed companies announced plans to reduce their holdings on Oct. 8 alone.

Sun Kuo-hsiang, a professor of international affairs and business at Nanhua University in Taiwan, told The Epoch Times on Oct. 11 that the Chinese stock market’s rollercoaster shows that the Chinese Communist Party’s (CCP’s) new round of economic stimulus policies didn’t achieve the expected results.

“The withdrawal of capital from large investors may be one of the factors [for the stock market’s plunge]. They have more market information and resources and are able to withdraw funds quickly before market fluctuations,” Sun said.

Sun said that the Chinese stock market fluctuation is more like the market’s reaction to the uncertainty of the CCP’s economic policies and the deterioration of the global market environment.

“Factors such as the global economic slowdown, intensified geopolitical risks, and rising U.S. interest rates have further suppressed the potential of China’s stock market and economic recovery,” Sun said.

Aggravating Economic Crisis

When stocks were rising, new individual investors including those in their 20s and 30s flooded into the market. Many individual investors saw the lowered interest rates on loans and used loans to speculate in stocks.

As a result, Sun said that with a large number of young investors and loan speculators losing money, “social dissatisfaction is likely to rise,” which “may raise doubts about the government policies.”

Xu Zhen, a senior professional in China’s capital market, told The Epoch Times on Oct. 11 that one of the reasons for the stock market plummet two days ago may be the massive sell-off of the previously locked-in stocks. He estimated that the market will stay in the range of 3,200 to 3,600 points for a while, and individual investors should not do leverage trading in this range.

“The stock market’s rise is short-lived and the Chinese economy continues to be depressed. Compared with stock speculation, perhaps doing nothing and saving money is the safest way of life for ordinary people,” Xu said.

Sun said that borrowing loans to speculate in stocks is undoubtedly one of the biggest risks.

“Once China’s stock market cannot be effectively stabilized, it may even lead to a large-scale financial crisis.

“Large fluctuations in the stock market will weaken investors’ confidence in the future of the economy, thereby affecting consumption and investment intentions. The stock market plummet may lead to a decline in consumption, putting additional pressure on China’s already slowing economic growth,” Sun said.

He noted that the Chinese economy is facing structural problems, such as insufficient consumer demand, a real estate crisis, and declining corporate profits, which cannot be easily solved by short-term stimulus policies.

“Overreliance on monetary easing and increased liquidity may once again increase bubbles in the stock and real estate markets. This short-term prosperity is unsustainable, and once the bubble bursts, it will have a profound negative impact on the financial system and economic growth,” Sun said. “Continued fiscal stimulus could lead to further increases in government debt.”

Xu shares a similar assessment.

“This round of sharp rise and fall of stock market is result of the transmission of the economic crisis to the financial sector, as the regime has hoped to save the economy, consumption, and local debt through the rise in stock markets,” Xu said. “In fact, this is the CCP’s wishful thinking, and the final result is to trigger the financial crisis process.”

Xu predicts that this round of financial crisis will trigger a social crisis.

“When the people’s grievances are focused on the CCP, it will bring down the CCP system. This is a major trend that no one, including Xi Jinping, can stop.”

Luo Ya and Li Jing contributed to this report.