In the category of always looking on the bright side, two researchers from the Carnegie Endowment for International Peace write in an op-ed for the Financial Times that China could use a crash to push through need reforms in its stock market:
While Beijing should resist the calls to bail out investors, it must respond to public pressure to punish companies and individuals that have engaged in illegal dealings during the bubble years. The government should seize their ill-gotten gains to set up a fund to compensate investors. The China Securities Regulatory Commission, the chief market watch-dog, should make its investigative proceedings open to the public. Although such measures might strike one as cheap tricks to scapegoat companies and their executives, they are politically necessary and can help calm an agitated public.
To restore confidence and revive the market, Beijing must turn the crisis into an opportunity to enact structural reforms that will improve corporate governance, make the CSRC truly independent, increase competition and raise the level of transparency in the stock market.
The market showed signs of improvement Wednesday, so the collapse/opportunity that Minxin Pei and Wayne Chen describe may not yet happen. But the political implications of a meltdown are increasingly apparent. The authors note that more than 100 million people have invested in equities.
And they aren’t all nouveau riche. A few months ago one of my neighbors, a bus driver, asked if I could fix his computer. When I took a look at it I noticed he had the updated prices from several mainland stocks flashing on the screen. The same goes for the guy who sells beer and cigarettes down the block. He’s usually so busy checking prices and conferring with fellow small investors over the phone that he tells me to serve myself from the crates of Yanjing sitting on the sidewalk. At 3RMB a bottle he’s probably making more on selling stock than on selling beer, or at least he was before yesterday.