The Chinese Stock Market

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The Chinese stock market is celebrating its 25th anniversary later this year, and its first 25 years have been a fairly consistent story. There has been a history of large, government-driven rallies, followed by dramatic sell-offs that have left many investors angry. As of August 2, 2015, stocks are down 29% from their peak in June 2015. The current bear market—defined as a fall of 20% or more from a peak—is the 27th that investors have suffered in the past 25 years. It is the 21st worst in terms of losses . The government has intervened heavily during this most recent bear market, and although the intervention created some short-term relief, in the long term the heavy intervention is setting China up for future trouble. Since opening up its market to foreign trade and free market returns in 1979, China has been one of the fastest growing economies, with GDP growth averaging nearly 10% through 2014. China is a major global economic leader, and is the world’s largest economy (purchasing power), manufacturer, merchandise trader, and holder of foreign exchange reserves . The economic financial crisis in 2008 had a large impact on China’s economy. Growth slowed, exports declined, and millions lost jobs. The government implemented a $586 billion economic stimulus package, and loosened monetary policies. The stimulus package helped the decreased demand for Chinese products, but the economy has still slowed in recent years since the crisis of 2008. Real GDP fell from
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