China's market collapse could play havoc with Premier Li Keqiang's economic reform model
Equities markets were seen as the economic drivers of innovation, but their fall could also sink Li Keqiang's "new normal" growth model
The mainland stock market crash has been a bitter pill for the real economy, and will be a huge comedown for policymakers if they are forced to revisit Premier Li Keqiang's "new normal" growth plan for slower, healthier economic development.
Li, the first mainland leader to hold a doctorate (in economics), raised the profile of the capital markets after he took the helm of the world's second-largest economy in March 2013, encouraging technological startups to net much-needed growth funds on the stock exchanges and the over-the-counter markets.
"The market crash could dash the government's hopes for the stock market being an effective fundraising channel," said Wang Feng, chairman of Shanghai-based private equity group Ye Lang Capital. "The worst is yet to come and it's nearly certain the collapse will hijack the originally planned policymaking."
Since June 15, the benchmark Shanghai Composite Index has plunged 29 per cent, sparking a crisis of confidence among investors who now believe the downward spiral will last some time .
Beijing stepped in to stem bloodletting on the A-share market, urging state-owned institutions to buy more stocks and cut transactions costs for shares trading, only to see skittish investors rush for the exit.
Yesterday the country's largest brokerages and mutual funds to work together to prop up the market, while 28 companies reportedly agreed to withdraw their IPOs. This came a day after the China Securities Regulatory Commission (CSRC) said it would slow down IPO approvals.