Don't Worry About the Decline, the Market is Calm

WSJ: That Calm Chinese Stock Market? It’s Engineered by the Government

Three years after a national uproar when Chinese stocks plunged by nearly half in just over two months, traders and brokers say regulators are increasingly stepping in to influence trades and make China’s markets appear less volatile, especially during political events when Beijing wants to project stability.

The steps, aided by advanced surveillance techniques to monitor traders, include warning brokerage firms to police trades that are out of step with government wishes and phoning investors directly when they act out of line.

The intervention is becoming more common just when Chinese equities are about to be included for the first time in a global stock index. MSCI Inc., whose benchmarks many investment funds follow, is set to add more than 200 Chinese stocks to its emerging-markets index on June 1. The introduction means more foreign investors will be exposed to a Chinese market that doesn’t move purely to the dictates of supply and demand.

“Never in over 25 years of watching the Chinese markets has the state been so involved and interfering in micro issues,” said Fraser Howie, an independent analyst and author of “Privatizing China: Inside China’s Stock Markets.”