It is important for China’s financial markets to funnel resources to the most critical sectors – technology and strategic industries. Fluctuating markets can affect stability. The swift government intervention underscores Beijing’s endorsement of the stock market’s role in China’s economic transition through technological innovation. China Securities Regulatory Commission chairman Wu Qing pledged to “keep a transparent, fair and open market order to let investors share the benefits of economic growth and the high-quality growth of the capital market”.

China’s financial market is also an important wealth creation platform, particularly for the middle class. Amid weak domestic consumption following the property slump, keeping the financial market stable is important to restore confidence among middle class consumers. Given that China’s economy, particularly the tech sector, is still growing and the view that the stock market should reflect that, there was a case for the government to step in to stabilise it.

The stock market is important for channelling resources to the tech sector. Many companies queuing up to launch initial public offerings (IPOs) are from the tech sector or other strategically important industries. Stable stock markets help new listings achieve a fair valuation.

This reflects the different economic systems of China and the United States, where even though the government is expected to do the bare minimum, intervention is not completely ruled out during a financial crisis. In China, because the government views financial markets as important economic tools, stabilising them is considered the government’s job.

The Chinese authorities believe that even though the second-quarter gross domestic product missed the mark with just 4.3 per cent growth, the overall momentum of growth remains strong. Exports are growing strongly and the hi-tech sector is still booming. Shanghai’s economy expanded by 5.6 per cent in the first half, beating expectations due to strong growth in hi-tech manufacturing and exports.

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