July 2015 – CHINA – “Before leaving the world, I wish to say I concede defeat. With capital of 1.7 million yuan and four-times margin, I bet the entirety on China Railway Rolling Stock Corp (CRRC). I have only myself to blame, nobody else.” So reads the suicide note left by a 32-year-old stock market speculator from Hunan who jumped to his death in early June after losing his life savings within two days. The man took out a huge loan worth four times his own capital from a ‘grey market’ lender. Believing the government’s gargantuan ‘One Belt, One Road’ plan was a sure fire bet, he staked everything on the state-owned railway carriage builder and lost.
So-called margin debt has exploded in the past year, fuelled by China’s major banks that have all rolled out ‘products’ to feed this monster. This has been an important factor driving the unprecedented stock market boom of the past 12 months which long ago assumed bubble proportions. Recently, the Chinese regime has become nervous about the extent of margin debt and its potential to cause an even bigger market meltdown. The brokers and loan sharks that finance margin trading can call in the loans when borrowers incur losses, forcing them to sell more shares which acts to magnify a selloff in the market.
China’s share prices have begun to recoil on the growing realization they have hit extreme levels and this turnaround has been reinforced by the government’s crackdown on margin trading in recent weeks, which by reducing liquidity in the market has punctured the bubble. The collapse in share values since the middle of June – falling almost 19 percent in two weeks – was the worst since 1996. Only the Greek stock market was more volatile in this period. According to the Wall Street Journal China’s market correction “has wiped away US$1.25 trillion in market capitalization, an amount roughly equal to the size of Mexico’s economy.”
The bubble waiting to burst
In early June, China’s stock markets hit a 7-year high with the Shanghai Composite Index passing the 5,000-level for the first time since January 2008. This was applauded as the biggest ‘bull run’ in the history of any stock market with the larger Shanghai stock market rising 150 percent in one year and Shenzhen almost tripling. The combined value of the companies listed in Shanghai and Shenzhen soared to over US$10 trillion – second only to Wall Street. “No other stock market has ever grown this much in dollar terms over a 12-month period,” declared the Washington Post.
Many commentators, including Socialist magazine, predicted that this was a bubble waiting to burst. The performance of the stock market is completely at odds with the real economy – of production, foreign trade, investment and consumption – which continues to slow rapidly. The National Academy of Economic Strategy (NAES), a government think tank, is forecasting second quarter GDP growth of 6.9 percent – below the government’s 7 percent target. Many independent forecasters believe the real level of growth is lower still. –China Worker
Suicidal tendencies and market crashes
The important question to be answered is whether a depression of the magnitude of 1930s is inevitable, or rather if the global economy can afford one of those severities. The Great Depression resulted in massive levels of poverty, hunger, unemployment and political unrest. With the October 1929 stock market crash thousands of investors lost nearly the entire value of their investments. In just a year after the crash, 23,000 people committed suicide in the US. More recently, about 5,000 suicides in the U.S. were reportedly attributed to the Great Recession of 2009. –Indian Express
July 2, 2015 – A woman jumped to her death inside Shanghai’s IAPM mall this morning, and while the case is still under investigation, it’s been speculated that the apparent suicide was related to China’s volatile stock market taking another dive. Shanghai Composite, China’s biggest stock, dropped five percent within just an hour and reached a three month low earlier today. Another suicide believed to be related to the stock market crash was reported in Shenzhen yesterday. –Shanghaiist