“LOVE is like war: easy to begin but very hard to stop,” observed H.L. Mencken, an American writer. Less poetically, he might have added market meddling to the mix. China had planned this week to dismantle some of the rescue measures put in place when the stockmarket crashed last summer. That prospect helped to spook investors: stocks fell by 7% on January 4th, the first trading day of 2016, their worst-ever start to a new year. Chinese regulators are once again wading in, however haplessly—on January 7th, shares dropped by another 7%.  

So what, you might ask. The unruliness of China’s stockmarket is not news. And for all the headlines generated by its tumult, it is a poor indicator of the economy’s health. Growth was already slowing early last year when share prices raced to vertiginous heights. Parts of the economy—the property market and consumer spending—have actually improved since stocks cratered by more than 40% during the summer (although manufacturing remains weak). Companies raise little financing from the market and savers store little wealth in it.

It seems that a falling stockmarket sends too transparent a signal of negative sentiment for officials to bear. The fingerprints of the “national team”—a motley crew of state-owned financial institutions—were all over the buy orders that swooped in when the market tumbled. The regulator was supposed to end a ban this week on share sales by big investors. Now it has drafted permanent restrictions, in effect telling investors that they are welcome to buy shares, but not to sell. It would be hard to conceive of a better plan for scaring money away. The poor design of circuit-breakers, trading halts ostensibly designed to calm the market, has added fuel to the fire.

The tension between reform and control is also evident in the currency market. The central bank has started to back away from obsessive management of the yuan’s exchange rate. But the more leeway that it creates for trading the currency, the bigger its headache. The central bank judges that the yuan is more or less at fair value; the market disagrees and has pushed it steadily lower. Selling dollars to prop up the yuan so as to make for an orderly depreciation, China has run down its foreign-exchange reserves by some $300 billion over the past half-year. The government still has a plump cushion, but its reserves are not limitless. Accepting more volatility, even if that means a sharper depreciation now, would be better.

Control peak

The government’s hunger for control is now clouding the broad economic picture. Burdened by the mountain of debt that it has accumulated over the past decade, China needs to begin deleveraging. That in turn means tolerating slower growth, at least for a while. Instead, all indications are that the government will set its annual growth target at 6.5% for the next five years in a plan to be unveiled in March. That is above what most analysts think it can credibly achieve without piling on yet more debt and bringing closer a real economic crisis. China has reached a point in its development where it needs to move faster in ceding power to the market—over shares, its currency and the growth rate. Unless the government gives up more control now, it risks some day losing it altogether.