For China’s financial markets, trust is everything

“The Chinese government has the capability to handle various risks in economic development and maintain healthy growth in the Chinese economy,” said Chinese Premier Li Keqiang while meeting World Bank (WB) President Jim Yong Kim. The two discussed bilateral and AIIB-WB cooperation and signed an agreement to set up a $50 million fund to help reduce poverty on July 16, 2015 in Beijing.

Li’s words came after two weeks of high turmoil on the Chinese financial markets that witnessed what can now be called a 30% crash although it must be put in perspective since Chinese stocks skyrocketed 150% in the previous 12 months.

Wang Baoan, director of China’s National Bureau of Statistics (NBS), came to the rescue and repeated he has confidence in the Chinese economy. “The economy has shown signs of stabilization and recovery,” said Wang, announcing that, according to the NBS data, China’s Q2 2015 GDP expanded 7 percent year on year, unchanged from Q1, beating a median market forecast of 6.9 percent.

However Chinese markets’ rout turned the investors sentiment upside down – from euphoria to fear – and now many of them wonder if the crash would resume once the Chinese government’s financial support to stock markets ends.

Overall, China’s economy remains strong in the long run, yet it will likely experience certain difficulties due to excessive speculation and lack of financial transparency. According to several sources, the stabilization of Chinese markets has not even started given that the disruption has barely begun. Trust is everything.