TalkingEconomics: China’s equity boom and bust

Craig Botham

Craig Botham

Senior Emerging Markets Economist

See all articles

Immediate macroeconomic impact should be limited

Our view is that the real economy is still sufficiently disconnected from the equity market that the impact on growth should be limited to the effects felt by the financial firms involved and those wealthier households exposed to the bust.

Most firms are not reliant on the equity market for financing, and the People’s Bank of China (PBoC) is capable of providing ample liquidity to keep credit markets going.

But while the impact of the crash itself may be manageable, our concerns centre on the implications of the government’s response.

For a more in depth review of the global economy in August 2015 try:

TalkingEconomics: Eurozone political risk shifts to Iberia

TalkingEconomics: Global storm clouds lift

TalkingEconomics: Full August 2015 economic infographic

Financial stability risks

Attempting to reverse the slump in the markets, the government responded with a broad array of measures, including encouraging widespread equity purchasing by institutions such as the China Securities Financial Corporation and the sovereign wealth fund.

This has effectively spread the risk of a sustained equity downturn throughout the financial system. Another negative side effect is resource misallocation.

Specifically, bank credit is increasingly directed away from the credit market (and potentially economically productive uses) towards financing equity purchases.

This will further weaken the impact of credit growth on investment and GDP, at a time when all three metrics are struggling.

The rescue package has not yet led to the sustained rebound that was hoped for. We believe market participants have little faith in the government-sponsored rally, and that absent heavy intervention the market has not yet settled.

We expect further efforts from the government but we think this will ultimately prove to be an expensive mistake.

Read the full report

Schroders - Economic Infographic: August 2015 1 pages | 719 kb



The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.


This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.


Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.


Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).


Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at or on request should you not have access to this webpage.


Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored


The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.