16 Pages Posted: 17 Jun 2016
Date Written: June 14, 2016
This essay documents the boom and bust of the Chinese A-share bubble in 2014-2015. The short-lived bull market started with the expectation of the state sector reform, capital market opening-up, and monetary easing. It was then fueled and heated by the flooding of new investors and the runaway leverage. The regulatory bodies failed to check the leverage in the early stage. Forceful crackdown on leverage, which came too late, finally tipped the market toward a violent crash. The 10% daily trading limits and the voluntary suspension of trading exacerbated the illiquidity problem during the crash. To make a more robust financial system, China has to strengthen regulation and supervision of financial activities. For this purpose, China should consider re-unifying the currently segmented regulatory and supervisory bodies into a new powerful authority above the ministerial level.
Keywords: A-share, bubble, leverage, China
JEL Classification: G14, N25, O53
Suggested Citation: Suggested Citation
Qian, Junhui, The 2015 Stock Panic of China: A Narrative (June 14, 2016). Available at SSRN: https://ssrn.com/abstract=2795543