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The precipitous highs and lows of the Chinese stock market this year have domestic and foreign investors on a rollercoaster and regulators on the alert.

China’s healthy economic rebound following its emergence from pandemic lockdowns has fired up investors, domestic and foreign, rich or not. Foreign investment hit a fever pitch in July, when a record $7.6 billion flowed in during the first four days, according to BNP Paribas. Concerned that the market was overheating, Chinese officials issued warnings, which led to $2.5 billion flowing back out of the country in just one day.

This trajectory highlights several things, one being the Chinese government’s influence on the market, which tends to swell and contract in lockstep with the rhetoric from Beijing. The players in foreign investment are listening, and so are ordinary Chinese. Of the more than 160 million trading accounts in China, the majority are owned by retail investors who make less than $700 a month, according to a state media survey. In fact, the momentum started in February, when many people opened accounts while under quarantine. When the lockdowns lifted, they flocked to brokerages.

What also stands out are the similarities to the exuberantly bullish zeitgeist, particularly amongst retail investors, which preceded the 2015 crash. Especially concerning is the big jump in new accounts for margin trading, the unregulated and risky practice of borrowing in order to invest in stocks. “The recent stock rally is a double-edged sword for Chinese policymakers,” ANZ Research said in a report.

The Chinese stock market is worth a quarter more than it was a year ago, with a collective value of about $10 trillion, the New York Times reports. An optimist would say the country is leading a global economic recovery. A sceptic would point out that it was worth just as much in June 2015.

Could history be repeating itself? Some important differences between 2015 and 2020 suggest that China has learned from past mistakes. Back then, regulators stood silent as the media fomented stock rallies. And when the selloff started, they intervened to give prices a boost. Things played out quite different in early July, when the government urged restraint following the surge. The securities regulator called out more than 250 online platforms offering illegal margin financing.

Optimists have a point. While many economies continue to struggle with the pandemic, China reported in July that its economy grew 3.2% over the past three months. “China is a tremendous driver of growth,” said Louis Kuijs, the head of Asia economics at Oxford Economics. This could in fact bode well for the global economy, which would have shrunk 10.5% in this period had it not been for China’s contribution. Kuijs estimates that instead it will likely recede by only 5.9%.

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