China's stock market slump and political ramifications

Here is a clip from PBS NewsHour which explains the sudden slide in the Chinese stock market and the political ramifications.

Last year — the Chinese economic growth has actually been slowing. And the government started encouraging individual investors to get into this market and help capitalize these small entrepreneurial companies, not the big state-owned enterprises, but the ones that have trouble getting money from banks, sometimes with good reason.

And so they did it by, for one thing, relaxing the restrictions that used to not allow you to borrow money to finance your stock purchases. So that’s the first thing. You now had all this margin lending.

Well, then, if the market goes down, these investors have to pay back with real money, either what they have got in the stock market or in other assets. And, secondly, as that all developed, the most — the ones that were caught are these smaller investors, which, as we said in the setup, are 85 percent of the market.

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