This is crazy stuff.
In an effort to preserve a bubble, the Chinese government is relying on loosening margin trading, direct buying, lowering reserve ratios, and opening pension funds.
This will not end well.
I'm really concerned about the pension funds. All foreign actors will remove their money from the Chinese markets, and the pension funds will be forced to buy up a lot of it, i'm sure. This is going to be the opposite of hedging your position, and if something goes wrong, people will lose their pensions. I hope that this won't cause civil unrest in China.
I can't imagine how it could play out any differently. This is a terribly cynical move, which suggests that the situation is extremely desperate. It has been suggested that the government was using the bubble to capitalize debt-strapped companies with share equity as a way to avoid bailouts. It's one thing to do that by fooling people into opening accounts, but doing it with pensions is awful. If I were a regional governor, I would be retiring and getting out of the country.
No doubt. However, people are going to be angry. I just read this morning that there were rumors circling that the drop was caused by 'foreign interference'. There has been a lot of talk over the past several years about the Chinese model of capitalism, with some touting its advantages over the Western model. However, when the government works to build the image that it is in control, it looks that much worse when it appears that it isn't. I think the possibility for social unrest in China is going to grow with an economic downturn.