Stock behavior may be out of the control of the government

 The  China market is out of control, that is, it is not in the control of the government and playing by any set of normal rules. If it was following the rules, the stock market would be increasing as the government desires with more funds employed in stocks as an alternative way of financing, creating productivity increases, and supporting economic growth, but it would be doing this at a rate in a manner that would be consistent with current economic growth.

Investors got the religion of investing last summer and then some which has lead to volatility that is 4-5 times greater than the S&P 500. The money supply that has been increased to help bolster the 7% economic growth target; however, liquidity and savings have lead to asset price inflation just like the US but at levels never expected. Commodity price inflation is declining and asset price inflation has exploded. This is what we have seen in other countries that have pushed money increases.

The leverage increases have been accelerating at staggering pace.

Now we are in a world where confidence has changed and the market is adjusting with a decline of just under 30% since highs set in June. The market is still up for the year, but this means that new money invested is underwater. Margin debt may be close to 20% of the free float in the market. investors to the stock market have been hit hard.

The response by the government has been been further decreases in interest rates, and micro policies to slow speculation but also stop further declines. There has been suspensions of new IPO's, relaxing of margin lending rules, more bank liquidity, and new stabilization funds totaling 120 billion RMB. Government officials and news services have asked for calmness from investors. There is an inconsistency between speculative restrain and pushing the market higher. Offering more liquidity and getting more buyers into an overheated market may not be a desired solution.