China: don’t make that U-turn

As China’s leaders survey the devastation in their A-share markets, which at one point lost $3.3 trillion in value, they should not be tempted to prop up prices continuously.

As China’s leaders survey the devastation in their A-share markets, which at one point lost $3.3 trillion in value, they should not be tempted to prop up prices continuously as this would only increase distortions in the cost of capital and bad investments.

Spillover from China’s stock markets crash into the domestic economy will likely to be limited since less than 10% of the population has equity investments, the banking system has relatively limited exposure to stocks, and the market index is still up on the year. 

Trading partners have suffered more than China itself think of commodities exporters, which have risen and now fallen with...

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