2015 Chinese stock market crash

The ChineseSTOCK MARKET crash began with the popping of the stock market
bubble on 12 June 2015.[2] A third of the value of A-shares on theShanghai Stock
Exchange was lost within one month of the event.
Causes[edit]
In the year leading up to the crash, enthusiastic individual investors inflatedTHE STOCK
MARKET bubble through mass amounts of investments in stocks often using
borrowed money, exceeding the rate of economic growth and profits of the companies
they were investing in.[2] Investors facedmargin calls on their stocks and many were
forced to sell off shares in droves, precipitating the crash.[3]
By 89 July 2015, the Shanghai stock market had fallen 30 percent over three weeks as
1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent
further losses.[4] Values of Chinese stock markets continued to drop despite efforts by
the government to reduce the fall.[5][6] After three stable weeks the Shanghai index fell
again on 27 July by 8.5 percent, marking the largest fall since 2007.[7]
Effects[edit]
Money magazine estimated that the potential negative impact on the United
States stock market may come about when Chinese investors begin to seek out
relatively stable U.S. investments in treasuries, stocks, and cash, and further strengthen
an already-strong U.S. dollar, thereby raising the prices on U.S. goods and diminishing
export profits.[8]
Global companies that relied on the Chinese market suffered from the crash. Stocks
that they own were devalued US$4 trillion. For example, French alcoholic beverage
company, Rmy Cointreau, and British luxury-goods company, Burberry, saw their
shares devalued and declining demand of their imports from Chinese distributors.
Second-quarterSALES of American fast food company, Yum! Brands, in China
dropped 10 percent, resulting in revenue going under the company's estimate. South
African ore mining company, Kumba Iron Ore, eliminated itsdividends on 21 July as the
61 percent loss of profit in the first half of the year was announced.[9]
Government response[edit]
The Chinese government enacted many measures to stem the tide of the crash.
Regulators limited short selling under threat of arrest.[10] Large mutual funds and pension
funds pledged to buy more stocks. The government stopped initial public offerings. The
government also provided cash to brokers to buy shares, backed by central-bank cash.
[11]
Because the ChineseMARKETS mostly comprise individuals and not institutional
funds (80 percent of investors in China are individuals [12]), state-run media continued to
persuade its citizens to purchase more stocks. In addition, China Securities Regulatory
Commission (CSRC) imposed a six-month ban on stockholders owning more than 5
percent of a company's stock from selling those stocks, resulting in a 6 percent rise
inSTOCK MARKETS .[13] Further, around 1,300 total firms, representing 45 percent of
the stock market, suspended theTRADING OF STOCKS starting on 8 July.[14]
Forbes contributor Jesse Colombo contended that the measures undertaken by the
Chinese government, along with cutting the interest rate, "allowing the use of property
as collateral for margin loans, and encouraging brokerage firms toBUY STOCKS with
cash from the People's Bank of China" caused Chinese stocks to begin surging in midJuly. He argued that in general, however, the outcomes of government intervention as it
relates to the crash will, by its nature, be difficult to predict, but saying that in the longer
term, the effect may be the development of an even larger bubble through creation of
a moral hazard.[10]
On 11 August, two months after the crash, the People's Bank of China devalued
the renminbi by 1.86 percent to CN6.2298 per US dollar.[15] On 14 August, the central
bank devalued it to CN6.3975 per US dollar.[16]
Black Monday, and Tuesday[edit]
Main article: Chinese black monday
On August 24th, the Shanghai main share index lost another 8.49%. As a result, bilions
of pounds were lost on international stock markets with some international
commentators labeling the day 2015 Black Monday.[17][18] There were similar losses on
Tuesday, leaving the market up 33% for the year.[19]