China Destroyed Its Stock Market in Order to Save It

... the real turn in the market came when China's Ministry of Public Security -- the no-nonsense tough guys normally tasked with cracking down on political dissent -- announced that it would arrest what it called "malicious" short-sellers. It was clear, however, that this meant anyone whose selling (not just "short" selling) interfered with the government's efforts to boost prices. The announcement cast a chill over the market. I have heard multiple reports of Chinese brokers refusing to accept sell orders for fear of angering the authorities. So when we say China's stock market stabilized, we need to put quotation marks around the word "market."

...

For years, China has dreamed of Shanghai's becoming a global financial center. Now, one analyst at the global investment firm Julius Baer told the Financial Times, "confidence in the local Chinese equity market has been shattered and is unlikely to come back anytime soon." Just a few weeks ago, observers confidently predicted it was "inevitable" that domestic Chinese stocks would soon be added to the major global indices that serve as benchmarks for professional investors. Today, with a mere rump of China's stock market trading at all, and with investors afraid they will be thrown in prison for selling at the wrong time for the "wrong" price, it's inconceivable.