Were foreign puppet-masters really behind the tanking Chinese stock market?

As China’s stock markets sank into bear territory again this week, after panicking investors offloaded their holdings, debate raged as to what exactly had prompted the market to fall with all the speed and ferocity of a sharpened guillotine.

Many pointed the finger at “foreign interference,” and not for the first time. The Chinese media, and foreign ministry in Beijing, love to bandy this term around and blame it for a range of problems. At times, it feels like the go-to scapegoat for any social unrest, or economic or political instability in China.

During “Occupy Central” late last year, the almost three-month pro-democracy movement that caused waves in Hong Kong and beyond, this old chestnut was again called into play by the powers-that-be in the Chinese capital.

“Foreign interference” was deemed to be behind the massive public protests in the city – at least, this was held up as one of several leading causes. 

Some pro-Beijing newspapers went as far as accusing America’s Central Intelligence Agency of fomenting the unrest, as Beijing faced its worst political crisis pertaining to the Hong Kong government since the former British colony returned to Chinese rule in 1997.

Now that the nation’s stock market is taking a beating after a year of enviable success, it seems like those interfering foreign agents are set to be paraded out again. 

In a cartoon published on Tuesday by thepaper.cn, a state-owned digital media outlet that aims to engage with a young audience, an old Chinese woman is depicted as saying she wants to thank the government for helping to rescue the market. She also blames “foreign ghosts” for willing it to crash.

The cartoon immediately went viral on Weibo and WeChat, China’s two most popular social media networks. Many Chinese netizens rallied behind the cartoon and began venting against “foreign interference” for destabilising the domestic market.

In another blog on a local financial news site that was also spreading fast on Tuesday, Goldman Sachs was among the overseas institutions blamed for shorting China's index futures, a ploy the unnamed author credited for the recent market routs. 

Interestingly, the politically sensitive posts were not taken down by Chinese censors, but were left untouched to gain traction online.

In fact, China's Financial Futures Exchange waited until Wednesday afternoon to deny the rumours that Goldman Sachs and other foreign investors had been shorting Chinese stocks using index futures, according to a report by Reuters. 

Meanwhile, China’s industry association for asset management firms published a public letter on Tuesday calling on domestic fund managers to band together to protect and stabilise the Chinese bourse. 

The message from the government-led association was loud and clear, or so it seemed. In sum, patriotic Chinese should not keep selling their stocks at such a time of crisis. This rallying cry aimed to boost the index by touching on nationalist sentiment.

“Be responsible,” the association wrote. “We’re crossing the river in the same boat.” 

On Wednesday, China's markets suffered another day of sharp falls as heavy selling saw benchmark indices plunge in the final half-hour of trading. 

The benchmark Shanghai Composite Index finished down 5.15 per cent, or 220.1 points, to 4057.04. In Shenzhen, the main index also closed down 4.64 per cent at 2344.78.

The CSI 300 index of China’s blue-chip stocks fell 4.92 per cent, or 219.98 points, to 4253.02.

One day earlier, the Chinese bourse experienced a surprising V-shape rebound. But perhaps it wasn’t much of a surprise, after all, given the cartoon protagonist’s message of appreciation to the Chinese government. 

She had to be thanking Beijing for something, which fed into the belief that the government went on a shopping spree for big blue-chip stocks to support the index.

Until the fog clears, and instead of blaming those pesky foreigners for all of the nation’s ills, it may be worth getting to the root of the matter, to try and minimise such stock market turbulence in the future.

George Chen is managing editor of SCMP.com International Edition. For more Mr. Shangkong columns: facebook.com/mrshangkong or follow @george_chen on Twitter