The View | China’s frantic intervention to prop up stock market makes global ambitions harder to reach

Like a would-be mother who wants to give birth without the bother or pain of pregnancy, China’s financial authorities want to have big stock markets but without the turbulence and excitement they produce.

Thus when Chinese share prices tumbled the authorities lashed out to unearth scapegoats who could be held responsible for the fall, this was followed by a slew of regulatory and other measures aimed at keeping the downward price spiral from turning into a rout.

When the bubble burst last month commentaries in the state media muttered darkly about foreign plots to undermine the Chinese markets. This was followed by the ‘discovery’ that short sellers were further depressing prices and were probably causing the problem.

To believe any of this requires a remarkable lack of knowledge about the Chinese stock market which is overwhelming a domestically traded market and unusually heavily dependent on individual investors as opposed to institutional traders.

As for the role of short sellers, they have behaved in the Chinese markets as they have in every market where short selling exists. This behaviour can be summed up in a single word: opportunism. Seeing that money was to be made in a market where prices were set to fall they acted on this logic and anticipated the price drop. This may well have accelerated the decline but it was not its cause.

The cause was there for all to see, indeed it was so obvious that I wrote about it in this space back in Mid-April. Even then it was staggeringly obvious that prices were out of line with potential corporate earnings and were soaring away in a manner that made no economic sense whatsoever.