China Stock Market Crash
After a government-encouraged bull run, the Shanghai Composite Index lost over 30% of its value in three weeks; the government's heavy-handed interventions—including banning large shareholders from selling—raised questions about China's ability to manage a market economy.
The Bull Run and Its Causes
From mid-2014 to June 2015, the Shanghai Composite Index rose over 150%, fuelled by state media encouragement, easy monetary policy, and an explosion of margin lending. Millions of ordinary Chinese investors opened new accounts, many borrowing heavily to invest. At the peak, over 90 million trading accounts were active — more people than had ever participated in China's stock market. The surge was widely acknowledged as a bubble even as it inflated.
The Crash and Government Response
Between June 12 and August 26, 2015, the Shanghai Composite lost over 43% of its value, wiping out trillions of yuan in paper wealth. The government's response was aggressive and extraordinary: the China Securities Regulatory Commission suspended IPOs, banned large shareholders from selling for six months, deployed state funds to buy shares directly, and investigated short sellers for "market manipulation." The interventions temporarily halted the slide but raised fundamental questions about market integrity.
Consequences
The crash exposed the contradictions in China's "socialist market economy": the government had encouraged a speculative bubble and then used authoritarian tools to manage its collapse, rather than allowing market mechanisms to operate. The episode damaged international confidence in Chinese financial market liberalisation and contributed to capital flight. A devaluation of the renminbi in August 2015, intended to boost exports, compounded global market volatility and triggered fears of a broader Chinese economic slowdown.