Who Will Protest China’s Stock Market Plunge?

Last August several hundred protestors gathered outside the Shanghai sales office of China Greentown Holdings, a real estate developer, holding banners with slogans such as “300,000 yuan worth of assets evaporate within five days — years of work in vain!” That loss – around $48,000 – was the difference between what the protestor had paid for a home, and the current price at which Greentown was now marketing models in the same complex. The protest wasn’t unique. A few weeks earlier, homeowners at the Champs Élysées housing development in Hangzhou gathered to protest a similar developer price cut, holding banners with message such as “Return my blood and sweat money” while police formed barricades. Around the same time in Jinan, a city 500 miles north of Shanghai, a similar protest turned violent after yet another market-desperate developer discounted homes by 25 percent. And those were just the most recent permutations of a phenomenon – homeowners protesting their devalued homes – that goes back to 2011, at least.

Protests don’t go unnoticed in Beijing, where the government keeps careful track of their numbers (as many as 180,000 in 2011). But last year’s real estate-related protests likely holds special interest among government officials now scrambling to stanch the damage done by China’s ongoing stock market collapse. Beijing, which has shown itself to be adept at deflecting popular blame for its mistakes in the past, is quickly finding out that its usual methods don’t work so well when millions of Chinese suddenly find their equity just isn’t what it used to be, and start looking for someone to blame.

It’s easy to overlook the extensive, key role that the Chinese government played in creating the Chinese bill market. Last spring, when it started, most Chinese investors had living memories of China’s 2007 market crash. Nonetheless, between May and September of 2014, the market rose a healthy if not spectacular 12%. Apparently, that wasn’t enough for Xi Jinping’s government, which was keen to see state enterprises have recourse to the markets, as well as the banks, for financing.

Enter the propagandists.

During the week of September 1, 2014, Xinhua, China’s flagship state-owned news agency, published eight articles “advocating equities investing,” according to a September 4 Bloomberg News story. They followed upon similar stories from People’s Daily, the official mouthpiece of the Communist Party, and China Central Television. And it never stopped: as recently as June 27, the state-run China Securities Journal published an editorial headlined: “China’s Stock Market Is Facing a Thirty Year Golden Age.”

Government stock touts weren’t the only reason that Chinese investors piled into the markets (a cooling housing sector and low interest rates had many Chinese in search of returns). But when the strongest government China has seen in decades tells investors that equities are the way to go, and reacts to market drops by providing you more opportunity to leverage yourself (among other measures), it creates the illusion – if not the belief – that the government is keeping the markets safe. When those markets turn out to be otherwise, there’s only one Party to blame.

The Communist Party has become adept at managing dissent and protest – even violent protest – over the years. By and large, however, those protests have been over local concerns – pollution and land grabs – and easily contained. Leaders are repressed or co-opted, and – more often than the government would like to admit – protestor demands are met. Meanwhile, thanks to China’s economic growth over the last three decades, pocketbook issues like inflation haven’t become major flashpoints for unrest. But they certainly have in the past, including in 1989, when food inflation played a role in the unrest that led to the Tiananmen Square protests. According to a 2011 Wall Street Journal story, the rise in protests during the 2000s, neatly tracked the rise of food inflation. Predictably, China has also become adept at managing food inflation, in particular, via strategic reserves of key staples such as pork.

So far, China’s 90 million stock investors – a number that exceeds the country’s 87.8 million Communist Party members – appear to have remained patient with their government’s efforts to save their savings. But the government’s unprecedented raft of rescue measures suggests in ways subtle and not so subtle, that the government doesn’t trust that patience will hold out indefinitely. On Sunday, Chinese media reported that Beijing police detained a man for spreading rumors about suicides related to the stock plunge. Elsewhere, the Chinese government’s effort to coordinate massive stock buys by brokerages has created a noticeable chill over sell-related conversations on Chinese social media (shorts are enemies of the Party under the current calculus). Meanwhile, investors continue to flock to take part in that most anti-government of acts: selling stocks.

Sell orders aren’t a typical form of protest. But in China’s current political environment, the national movement to unload equities, despite government assurances and measures designed to produce the opposite result is as sure a national rebuke to the Communist Party’s leadership as that leadership has faced in years. When China’s markets eventually recover, the Party’s reputation as a competent manager of the economy is unlikely to recover with it.