Washington — THE other day while I was crossing the street in Beijing, a car almost flattened me. Both the driver and I were outraged at the other’s ineptitude. In China, if you want to avoid being hit, you keep your head down and avoid eye contact with the oncoming driver, since looking at him would signal that you saw the car and know you should let it pass. In the United States, the opposite rule applies: Making eye contact confirms that the driver has seen you and should yield to the vulnerable pedestrian.
Something similar is occurring now between China and global financial markets. Billions in renminbi and dollars could be lost while trying to untangle the lines of communication.
Chinese bureaucrats believe that they have the right to intervene in their country’s economy whenever they want, not only to promote certain industries but also to prevent sudden downturns and reduce volatility. Officials believe that they don’t have to defend or explain their decisions in real time to market participants. In fact, being opaque preserves their discretion to make changes on the fly.
This approach goes against the operating principles of global financial markets: clarity and timely transparency. Intervention should be the exception, not the norm.
The job of regulators should be to ensure a fair market, but China’s stock market is worse than a casino, as Chinese regulators’ goals and the basic rules of the game can shift without warning. With China’s housing market in disarray in 2014, authorities invited investors to shift their capital to the stock market and then took a series of steps to facilitate high returns. When the market started to nose-dive last summer, officials wouldn’t let the bubble that had inevitably formed fully burst. Instead they suspended trading for some companies, mopped up shares, ordered large shareholders not to sell and accused market analysts of spreading false rumors.
Read more:
http://www.nytimes.com/2016/01/18/opinion/stop-chinas-market-manipulations.html?ref=world
