arrow-down.jpgChina's
domestic stock market experienced its biggest slide in three months,
dropping more than 6% in this morning's session, after the government
tripled a tax on securities transactions.

The Chinese government took the measure in dampen the trading
activity of China's small army of private investors — who account for
the majority of turnover on China's domestic stock exchanges.

It hopes to engineer a soft landing without bursting the bubble
because the latter would undoubtedly bring widespread hardship and even
economic ruin for those private investors who have bet the house —
literally — that the market will keep going up.

As explained in our earlier story,
China's private investors have taken to share trading with gusto
because of the lack of a well-developed retail investment market.
According to the Financial Times, the number of share-trading accounts
in China now tops 100m with interest accelerating each time the market hits a new peak.

Around 385,000 new accounts were opened on Monday alone, according
to official Chinese figures. In the previous week, around 1.5m new
accounts were opened.

Should businesses in the west be worried by this phenomenon?
Probably not. The risk of contagion to other geographic markets is
limited and its mainly private investors who are doing the gambling —
although keep a look out if the Chinese managers of your local JV has
recently developed an unhealthy interest in the ups and downs of the
Shanghai Composite.


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