Beijing Hasn't Stopped Watching the Markets

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Has Beijing suddenly become a fan of free markets? The Chinese authorities have largely stayed on the sidelines thisweek as the global roller-coaster ride has spread to their shores. The Shanghai Composite, the country's main equitiesbenchmark, slipped 4.1% Friday, its worst one-day drop (https://www.wsj.com/articles/shanghai-shares-hammered-worst-since-2015-rout-1518157387) since August 2015. On Thursday, the yuan suffered its sharpest one-day slide (https://www.wsj.com/articles/chinese-yuan-poised-for-biggest-one-day-drop-since-2015-devaluation-1518070593) against the dollarsince its surprise devaluation that same summer.

The sudden laissez-faire attitude is a bit surprising, if only because Chinese markets had gone a long way to sheddingtheir casino-like reputation. Since the market crash of 2015 and early 2016, huge state-backed investment funds haveregularly stepped in to buy up Chinese stocks when the market looked like getting hairy.

That, and tighter regulation, made Chinese equities a yawn last year: The Shanghai market moved up or down by morethan 1% on only 12 trading days in 2017. In 2015, that number was 141 days. The yuan, too, has been relativelyunexciting, rising steadily against the dollar along with most other major global currencies.

Beijing's motives can be hard to divine, but it appears to have made a sensible decision in allowing the market calmto shatter. Why spend treasure trying to fight against global market forces, after all? The country's central bank hasbeen relaxed so far too, refraining from flooding the market with cash for 12 straight trading days. Regulators may alsohave reasoned that after a long run up, both Shanghai stocks and the yuan could do with having some air let out.

Investors ought not take this as a sign that the Chinese state has come over all Milton Friedman. The broader backdropin Xi Jinping's China is still one in which the state is taking more control of the economy, not less. Future stockmarket tumbles caused more by domestic factors--as in 2015--are likely to be met again with strenuous resistanceefforts.

The Shanghai market isn't particularly expensive right now, trading at 13 times expected earnings, around middle ofthe range in the past two years. Beijing might not be averse to future intervention if it falls too far out of line. Norwill it want the yuan to slide out of control. Don't take this week's seeming indifference for inattention.

Write to Andrew Peaple at andrew.peaple@wsj.com (mailto:andrew.peaple@wsj.com)

-Andrew Peaple; 415-439-6400; AskNewswires@dowjones.com