China’s Stock Crash Raises New Fears

State-owned media raised confidence in the market even as the broader economy slowed. And the government encouraged the frenzy by allowing investors to useborrowed money to buy stocks. In the second quarter of this year, about 8.8 percent of urban households in China owned stocks, a big jump from 6.1 percent in the first quarter, according to a recent survey.

.. Government efforts to prop up markets, without broader financial reforms, generally do little more than delay the inevitable. A stock market crash, slow-motion or quick, is likely to stir social unrest, which the Chinese government fears. But bailing out investors is likely to fuel more speculation in stocks and other parts of the financial market.

.. Mr. Xi and his officials should also move to provide more ways for households to safely invest their savings. Historically, the country has capped the interest rates banks can pay on deposits, which has encouraged people to pour money into real estate and stocks to get higher returns. The government has taken some steps to raise the interest rate cap, but has reportedly undercut that reform by telling banks not to raise rates, fearing that would further slow down the economy.