Market sirens lead China astray

CHINA'S pledges to prop up the stock market are unwise. It didn't have to be this way - if only the country's authorities had been able to resist the lure of inflating asset prices. That's a challenge few governments have met.

After the benchmark Shanghai Composite index fell 8.5 per cent on July 27, the main stock regulator announced it would continue to support the market. Such twitchiness is astonishing. Dark talk of "malicious shorting" adds to the air of a government on the back foot.

This is the high price of being a free rider. For most of the past three decades, financial markets in China were something to be controlled, or selectively employed to aid the real economy. That displeased foreign banks and investors, but basically kept things stable. Companies funded themselves from profits or bank loans. Equity typically made up less than 5 per cent of new financing in any given month.