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‘Ground Zero’: China’s Stock Market Crash up Close in Shanghai

For decades, the Chinese Communist Party has been able to keep control of democracy protests, dissidents, the legal system and the military, but it is now facing an even more intractable foe: a plummeting stock market.

Invisible and fast-paced, mutinous market forces­ have defied the party-led government’s efforts to arrest the month-long slide in Chinese stock markets. If this continues, the slump in stock prices could slow the economy and undermine faith in the party’s leadership and power, experts on China and economics say.

Only three months ago, the state-run People’s Daily opined that rising stock prices were the “carriers of the China Dream” and affirmation of President Xi Jinping’s signature vision for what he calls the great rejuvenation of the Chinese nation. But what had been hailed as a bull market has turned into a burst bubble.

Shanghai’s main share index is down a third since its June peak. Trading in nearly three-quarters of listed shares was either frozen because of limit declines or completely suspended, and even the securities regulator was talking about a mood of “panic.”

As the stock market collapsed, Chinese authorities have ordered brokerages and insurers to buy, barred insiders from selling, and tapped the nation’s sovereign wealth to prop up shares. The government also invoked patriotism, blamed foreigners and arrested what it called rumormongers.

The Chinese stock swoon has been “a complete revelation of how unprepared the policymakers are for managing the transition to market-driven capital markets. That’s the question of the moment,” said Daniel Rosen, a partner at the Rhodium Group, a New York-based economic advisory firm. “The question for tomorrow is whether that immaturity applies to their ability to regulate other aspects of the economic transition as well.”