This week’s Chinese stock market implosion has
been widely viewed as a reaction to the Chinese government’s devaluing
the yuan on Aug. 11—a move many presume was a frenzied bid to lower
export prices and strengthen the economy.
This interpretation doesn’t stand up to scrutiny.
First, Chinese investors haven’t been investing based on how the
economy is doing, but rather, based on
what they think the government will do
to prop up the market. The crash, termed “Black Monday,” was more
likely a reaction to the central bank’s failure over the weekend to
announce a widely expected cut to the bank reserve requirement since
previous cuts in February and April had boosted stock prices. The
government eventually caved and
announced a cut on Tuesday (Aug. 25).
(more)
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