by Alex Francis

China's Financial MarketPhoto by rahims |

When China’s Shanghai Composite average fell below 2,000 at the end of November, it set off a red flag for investors who already doubted their national government. The index was down 10.4% as of the end of November, following a 43-month low in September, and has been on a downward slope since April 2011.

Chinese Government Overrun with Scandal

Despite reports on industrial profits, exports, and inflation, which indicate the Chinese economy is actually turning itself around, Chinese citizens have consistently been turning to social media to express their concerns about the government’s poor regulation of the market, excessive corruption, and misguided interference from authorities.

These feelings are not unfounded—a report last month by the New York Times pointed to the outgoing Chinese premier for making a windfall of millions of dollars from holdings in a state-owned insurance company for his family, and more recently a village official was put under investigation under the suspicion that he owns 80 houses and 20 cars. These financial scandals come at the heels of one official being fired for his involvement in a sex scandal and another covering up the involvement of his son in a fatal car crash.

Unsteady Leadership Worries Investors

The Chinese stock market relies heavily on the opinions of individual investors, because they dominate the market over institutional investors. This makes the stock market more vulnerable to changing impressions and personal whims, and the continual leadership change in China is not helping to instill confidence. As of now, the Chinese government has taken no steps toward policy changes that would reassure investors. And with Chinese media propagating the idea that the market is suffering, it is unclear how long it may be until things turn around.

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