Economists have warned that reforms to the Chinese equity markets may slow as a result of the recent losses witnessed on the Chinese stock market.
The Shanghai Stock Exchange Composite index fell by 31.7% in the month to 8 July 2015, according to FE Analytics, triggering predictions that anti-reformists will use the volatility as a reason to attack President’s Xi’s market reforms.
Sean Yokota, head of Asia strategy at SEB, said: “This deals a huge blow to the reform process endorsed by President Xi. Opening and development of the equity market fits in President Xi’s overall goal to allow markets to play a bigger role in resource allocation.
“The surge and plunge in equity markets and the inability by the government to control this gives more political capital to the anti-reform party who say that reform can lead to instability and faith in the communist party. The reform process may slow going forward.”
Despite this, other financial experts remain upbeat that the reforms could still have a positive impact on the Chinese economy as a whole.
Jeremy Lawson, chief economist at Standard Life Investments, said: “The government has stepped up the pace of structural reforms – liberalising the financial system, cracking down on corruption and loosening fiscal policy, albeit in a targeted way.
“As a result, we expect there to be modest success in boosting GDP, although the longer term glide path is towards slower growth.”