The down market today should be enough to wipe away the theory that the presence of stock-market circuit breakers was the cause of the stock market declines. In six sessions so far this year the Shanghai index has been down four times for an average decline of 4.9 percent. The two up days have averaged 2.1 percent. Stock market technicians are probably correct in saying that the market circuit breakers added to volatility,but there is not much evidence of that either. Stocks should be at sustainable levels when the Shanghai index is near 2200, so nearing that value should in theory diminish volatility. That too is a theory that is hard to support in the data, in spite of closing a third of that gap this year. Another credible theory about the circuit breakers is that regulators didn’t like them because they gave individual investors a better chance of keeping up with the stock market action. If the thought is starting to sink in that Beijing doesn’t really like individual stock investors, that too will change the dynamics of the market. That may be what we are seeing if the more superficial policy changes meant to reassure the markets seem to fall on deaf ears.
The stock market audience Beijing would especially like to impress is well-funded foreign investors, and there, the past seven years of hype seems to have worn off last year with little hope of bringing the audience back to the theater anytime soon. One problem there is that manufacturing for export is one of the most verifiable business activities, an important factor in a country where economic results are exaggerated on a daily basis. If the manufacturing game is starting to fade, is it possible to lend the same kind of credibility to other business categories — and if so, how?