China's share market volatility likely to have limited impact on economy

IT SEEMS that western commentators can always find something to worry about regarding China. Last year, it was shadow banking and the property market. Lately, it's been the sharp rise and pullback in its share market. The latter has indeed been severe - with a 32 per cent fall over 3½ weeks. There have been many headlines regarding the share market volatility and efforts to stabilise the market. This note looks at the key issues.

Chinese shares - what happened?

Starting about a year ago, the Chinese share market commenced a new bull market after the bear market that began in August 2009 came to an end. This made sense as Chinese shares were among the world's cheapest and the Chinese authorities were gradually starting to ease economic policy.