In China, stock market volatility is the symptom, not the disease

THE start of 2016 has been rough for China. Monday saw the introduction of a new mechanism in the Chinese stock market: a circuit breaker that automatically shuts the market down if prices go into free fall. Within four days, the circuit breaker went into action twice, halting trading on two different days in an attempt to stop the decline. Though this might be worrying for the Chinese government, it is not new; a study shows that if such a circuit breaker had existed last summer, it would have been triggered at least 20 times.

In truth, this activity in the stock market pales in significance to the other major development of the week: Thursday’s announcement that China’s foreign exchange reserves dropped by a record amount in December, from $3.4 trillion to $3.3 trillion. That brings last year’s total decline in foreign exchange reserves to $513 billion.