HUMAN STORY OF CHINA's CRASH - SCARIER THAN ECONOMIC PICTURE

By Ruma Dubey

Much before the crash on Monday, in China, a 32-year-old man who had borrowed four times his investment in China Railway Rolling Stock Corp Ltd., lost $280,000 when the stock fell 30%, and then jumped to his death.

There was a desperate message from a woman in China on Weibo, China’s equivalent of Twitter. She posted, “I put all my family’s money into CRRC. Two months of torment and every minute of it was pain. Tomorrow I will leave, carrying a lifetime of suffering with me!” CRRC is the state-owned train maker.  The Chinese authorities managed to track the woman from her Weibo handle and rescued her before she could commit suicide.

Yang Cheng, a farmer in the remote town of Panzhihua in southwest China, was one of many Chinese citizens who started buying up stocks after the government began promoting equity investment as part of a larger plan to expand the country's economy. He not only put his entire life savings but that of his relatives also – all of $1,64,000 into shares of a local mining company. He today stands with nothing in his hands but just a pile of debt – he borrowed $1 million to buy stocks on margin and now he owes more than what he had originally invested after liquidating his portfolio.

This Sunday, just before the crash on Monday, China allowed local pension funds to invest up to 30% of their net assets in the country's stocks, equity funds and balanced funds. The timing of this announcement spiked a lot of suspicion as even then, things did not look good for China. Thank god the market crashed before the plight of senior citizens had become worse!

Unlike India, where FIIs, DIIs and HNIs rule the markets, with retail investors forming just a fraction of the stock market investing population; in China 80% of the investment in stock markets comes from retail investors. And that in a nutshell brings us to the moot point of this story – the human element of the crash. Social unrest after this crash is a very big worry for the Chinese authorities.

In fact after the post of the message by that lady on Weibo, the Chinese have started monitoring each and every message posted on social media. Local news media is banned from publishing any story of suicide or unrest amongst the “equity citizen”. No negative news on the market and economy is allowed.

China’s Govt has a big hand in encouraging retail investors to put all their money in stock markets. It ran propaganda, advertising campaigns, about how their money invested in the stock market can fuel the country’s growth. That was the only route it could take - banks were maxed out when it came to giving credit – which stands at 300% debt to GDP. Thus they took to promoting the stock market.

Pulling on their patriotic strings and the promise of a better future, people from all walks of life invested in the Chinese stock markets. Even from the remotest corners of the country, people borrowed to invest.  To a large extent, most of these new breed of traders were gullible, they believed what their Govt told them. As per data put out by Bloomberg, 60% pf China’s new traders dropped out of school at junior high and over 6% could not read. And it was these new traders and the older people who put all their life savings in the Chinese markets.

And that brings into perspective the kind of social unrest China is staring into if the situation does not improve. The Chinese authorities are well aware of this fact and are literally firefighting – controlling all information that gets published, in every form of media – be it social, electronic, digital or print.  A simple search for “stock market crash” on the site, called Weibo, spits back several selective results or no results at all with a message stating, “Sorry, couldn’t find ‘stock market crash’ relevant results”.  Tuesday’s edition of The People’s Daily, the official Communist Party newspaper, did not make any mention of the market fall, while it was headline news world over.

For now, nothing seems to be working. The CRR and interest rate cut did not cut any ice; markets continued to fall today also. Have the people lost faith in the Chinese Govt? And thisrebuilding of faith, would require more than tinkering with fiscal measures when people stand with empty pockets and hearts filled with loathe.