In the very short term, the Chinese authorities are likely to increase the number of measures taken to support the stock market.



They responded quickly to the market collapse. At June ending, the central bank acted through monetary policy measures, simultaneously cutting benchmark lending and deposit rates by 25bp and cutting reserve requirement ratios. It did not accompany these decisions with a further liberalization step of interest rates, as had been the case with the three previous rate cuts since November.



At the beginning of July, the authorities introduced a suite of more administrative measures like easing of margin trading rules, direct purchases of shares, injection of liquidity, directives to institutional investors to help support share prices.



"Further ahead, the healthy expansion of the stock market will depend primarily on the financial reform and capital account opening process. This process is likely to continue, even though the authorities' interventionism of recent days provides a reminder of their distrust of giving too great a role to market forces", says BNP Paribas.