Saving China's stock market ?

We estimate the value creation for the stocks purchased by the Chinese government between the period starting with the market crash in mid-June of 2015 and the market recovery in September. We find that the government intervention increased the value of the rescued non-financial firms by RMB 206 billion after netting out the average purchase cost, which is about 1% of the Chinese GDP in 2014. The shortterm value creation came from the increased stock demand, the reduced default probabilities, and the increased liquidity. The intervention may come at a long-run cost of creating moral hazard, preventing price discovery, creating more uncertainty, and damaging government credibility.


Publication year:
2019
In:
In: IMF Economic Review. - Vol. 67(2019), Issue 2, p. 349–394

Note: The status of this file is: restricted


 Record created 2019-06-04, last modified 2019-08-05

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