Stock market trembles at a fake People’s Daily editorial

China’s stock market was shaken Tuesday and Wednesday by reports of pending policy tightening. Rumors had been circulating online about a forthcoming People’s Daily lead editorial warning of risks in the stock market, and many investors guessed that the government was pulling the strings.

Turns out it was all just a hoax. Though the government is supposed to have left behind the old practices of planting editorials to implement policy changes, investors have long memories – the fake resembled a real editorial that PD ran in 1996, after which the market tanked.

Here’s a short comment on the issue by Southern Weekly‘s Guo Guangdong:

“People’s Daily will issue an important editorial against the stock market!” The stock market experienced dramatic tremors today on the influence of this rumor; market confidence declined sharply from several days before, and a sense of panic and desire to flee was in evidence.

These two days, an article titled “People’s Daily Editorial” has been circulating online. The “editorial” began: “Since 2005, the stock market has steadily risen, rising sharply from 2006 on. From 2006 to 2007, the Shanghai Composite Index has risen 300%, and the Shenzhen Index has risen 340%….we ought to have a sober understanding of the conditions of the our country’s stock market.”

As stock market averages have been hitting new highs, this type of information strikes like a lightning bolt at the weak hearts of old stockholders. Many people remember the People’s Daily editorial of 16 December, 1999* – “A correct understanding of the current stock market” – as if it were yesterday. When this signed commentary “warning of the stock market’s risks” was published, the market tumbled over several days and investors were struck dumb with anxiety. In this way, a long bear market started because of an editorial.

So when this type of “editorial” reappears today, can investors avoid panicking? Fortunately, the media asked for confirmation from People’s Daily: this piece of news was pure rumor; People’s Daily had no plan to publish an editorial on the stock market.

However, the reason the so-called “People’s Daily Editorial” was able to spread so widely and with such real effects is not hard to see: the spectre of the “policy market” looms large in people’s minds. The old habit of using a People’s Daily editorial to prop up or push down the market should no longer be given space to breathe.

In short, let the government have what belongs to the goverment, and let the market have what belongs to the market. Managers are responsible for oversight, investors are responsible for investing; bridges are bridges and roads are roads. Let the market decide the affairs of the market – this is the market economy. Today, China’s stockholders are no longer the three-year-old toddlers of the market’s first days. They know the risks, so there is no need for that respected central organ People’s Daily to issue an editorial to pour on exhortations.

Cheers to the People’s Daily not publishing a stock market editorial! I hope that I can continue to offer those cheers in the future.

Note: This is a misprint; the editorial, China’s first formal editorial on the stock market in an authoritative newspaper, was published in 1996. Here’s a summary, from PD‘s “today in history” section. In May, 1996, after the central bank cut interest rates, the Shanghai Index began its climb from around 500 to over 1200 by December; after the editorial, it tumbled to 865. In May 1999, another strategic PD editorial sent stocks climbing upward.