BEIJING — China’s leaders are trying to tap the brakes on a stock market boom that could run out of control and disrupt economic reform plans.

After months of cheerleading for rising prices, the Communist Party newspaper People’s Daily sounded a cautionary note this week, warning that stock trading is “high-risk.” It said the public should “invest rationally.”

China’s main stock index has more than doubled since November, making its market the world’s best performer.

The boom has been driven by easy credit, government encouragement for newcomers to invest, and hopes that the world’s second-largest economy would rebound from a deepening slump. That outlook has been clouded by weaker-than-expected economic growth and trade – yet markets kept rising.

Now, Beijing is trying to nudge investors toward being more realistic without sending prices tumbling.

“The danger of the bubble bursting is huge,” said market analyst Zhang Yang of Guojin Securities. “The government wants to cool the market.”

Advertisement

Brokerages were ordered in late April to rein in lending to investors who wanted to buy stocks. That reflected concern that small investors were taking dangerous risks and that a fall in prices could lead to political tensions or losses for the state-owned securities industry.

Beijing keeps its financial system sealed off from global capital flows, and few foreigners are allowed to invest in them. But changes in Chinese markets can affect sentiment abroad. April’s announcement about margin lending triggered selling on Western exchanges.

On Tuesday, the benchmark Shanghai Composite Index declined 4 percent, in what financial newspapers said might be a response to official efforts to cool investor emotions. It lost another 1.6 percent Wednesday and 2.8 percent Thursday, but still was up 34 percent over the past three months.

Yang Jing, an engineer for a Shanghai commercial real estate company, said he put 50,000 yuan ($8,000) into the market in March and was profitable until Tuesday’s decline. After that, he said he was down 5 percent.

“If it goes down further, I will sell when I have lost 10 percent,” said Yang, 27. Still, he said, “when the economy gets better, I think the market will get better again.”

A deeper decline could disrupt the Communist Party’s marathon effort to make the state-dominated economy more productive by giving market forces and entrepreneurs a bigger role.


Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.