China’s Stock Market Falters as Holiday Season Begins

Welcome to Foreign Policy’s China Brief.

The highlights this week: China’s stock market undercuts public confidence as the Spring Festival holiday begins, 9 billion trips are expected within China as holiday travel gets underway, and a democracy blogger receives a significant prison sentence.

China’s annual Spring Festival holiday, when the country celebrates the Lunar New Year, begins on Saturday—and stock market regulators are likely counting down the days. 2023 was a record third straight year of losses for China’s stock market, and this year isn’t looking much better. The weeklong suspension of trading during the Spring Festival may offer a breather.

After another round of government promises to stabilize stocks last week, the market slipped further before staging a recovery on Tuesday as the government pumped money into the market from its sovereign wealth fund. It’s not clear if it will last, given increasing public skepticism. Although the Chinese stock market isn’t nearly as critical to the country’s economy as Wall Street is to that of the United States, it is still important.

For one thing, the market has become a powerful symbol of relative government impotence. The Chinese public is tolerant of state interference when it works; but when it fails to solve a problem, anger grows. As each new pledge to stabilize the market falls short, it chips away at underlying economic confidence. That, in turn, undermines the authorities’ ability to address even bigger problems, such as the property market crisis.

In an ideal world, regulators could publicly state that they will let the market run its own course, even if it is a painful one. But that is politically impossible in China, where the urban middle class regards government bailouts as an article of faith and makes investments on an implicit promise that the authorities will protect them if things go sideways. It’s clear the political leadership still expects regulators to pull off an impressive feat of stabilization.

The government is relying on another familiar technique in response to the market slide: blaming “malicious forces” and “criminal gangs” for manipulating the market and reviving campaigns against short sellers. Authorities have targeted prominent fund managers for detention and investigation in recent months, likely in an attempt to encourage others to throw more money into the market. Such coercion can work with Chinese firms, to some degree. But it’s a signal to foreign investors to get out.

Meanwhile, Chinese state media has taken on an optimistic tone, leading to online pushback. One of the strangest examples of this pushback is sudden enthusiasm for United States, with small Chinese investors commenting on an unrelated post from the U.S. Embassy’s Weibo account with laments about the state of China’s economy or calls for Washington to help. (Many of the posts were later censored.)

In China, public sentiment about the United States tends to have little to do with the realities of American life or U.S. actions on the world stage. The United States holds a place of power in the Chinese imagination, becoming a target for national fear or, as in this case, an imagined savior. (China plays a similar role for many Americans.) As public unhappiness grew in China last year, public opinion of the United States rose.

Most Chinese households aren’t invested in the stock market, but that doesn’t lessen the pain for the small investors who are—especially those who believed the government’s promises. Take prominent online propagandist Hu Xijin: Last July, he wrote on Weibo that he opened a trading account with 100,000 yuan—roughly $14,000—because Chinese stocks had room for expansion. Six months later, Hu said his account has lost 70 percent of its value.

Spring Festival travel. This year’s Spring Festival travel period—only the second since China ended its zero-COVID policy—looks set to create a mess. No fewer than 9 billion individual trips are predicted, nearly double the number last year. For many Chinese people, getting home for the holiday involves multiple forms of transit, with each leg counted as a separate trip.

China’s extensive travel infrastructure understandably strains under the seas and mountains of people, as the saying goes, who swamp train stations and airports during a regular holiday. Unusual winter weather has already worsened that strain this year, leaving travelers stranded. The travel period could also lead to a rise in COVID-19 cases, although the government effectively stopped issuing statistics in November 2022.

Blogger sentenced. Chinese democracy blogger Yang Hengjun, who holds Australian citizenship, has been issued a suspended death sentence—effectively a long prison term, possibly life—by a Chinese court. In his late 50s, Yang has spent five years in prison on unspecified espionage charges after returning to China in 2019 while awaiting new U.S. visas for himself and his family; he was tried in 2021, but the verdict wasn’t revealed at the time.

Yang migrated to Australia in 1999 and became a citizen in 2002; his background in China before then is somewhat mysterious. He seems to have worked both as a diplomat and for China’s Ministry of State Security. The announcement of Yang’s sentence may disrupt Australia’s largely successful attempts at a rapprochement with China following years of disputes.

China’s military budget has been on a steady upward course for decades, especially as the country’s GDP skyrocketed in the 2000s and 2010s. But does preparing for war necessarily mean it wants war? In Foreign Policy this week, Michael Beckley and Hal Brands argue the signs are flashing red. However, last month, William D. Hartung wrote that hawks in Washington are overestimating the threat.

• How Primed for War Is China? by Michael Beckley and Hal Brands
• 3 Options for How Biden Could Respond to Iran by Jack Detsch
• The Habsburg Solution for Viktor Orban by Caroline de Gruyter

Property struggles. The Chinese government is desperately trying to prop up the property sector, but buyers aren’t responding. In January, new sales hit a five-year-low, down by more than 34 percent year-on-year. A new so-called whitelist of favorable loans is supposed to revive Chinese real estate, but it is having little effect so far.

The failed negotiations over China Evergrande Group’s bankruptcy suggests that part of the problem may be an ongoing struggle to determine winners and losers among real estate creditors, with the Chinese Communist Party ultimately acting as the arbitrator. Local governments, deeply dependent on land sales and wrapped up in debt, seem likely to be among the losers—which is one reason that local officials are rapidly revising GDP growth estimates downward.

Ancient revelations. The deciphering of a previously unreadable ancient Roman Herculaneum scroll using machine learning opens up exciting possibilities for Chinese history. Before the invention of paper, sometime in the second century B.C., many texts were inscribed on wooden and bamboo strips. Along with documents damaged by fire, flood, or exposure, machine learning may be able to piece together such texts faster and more reliably.

China has one of the longest histories of writing in the world, as well as one of the longest histories of the destruction of books for ideological reasons. Machine learning may greatly expand our knowledge of entire schools of thought for which texts are currently limited or corrupted, such as the Huang-Lao school or the teachings of Mozi, and perhaps reveal unknown intellectual realms.