One does not become an international financial place in a single day. Shanghai is now becoming aware of it. Chinese leaders, facing the collapse of financial markets seem to have trouble finding the right attitude as they are used to be always in control of the situation. But markets do not work like that. However, the way international media rejoice themselves while reporting the fall of the stock exchanges in Shanghai and Shenzhen and implying against all odds, that the economic and political consequences would weaken the country, is suspect.

(Almost) nobody predicted the Chinese “Thirty Glorious”. Whenever the country slightly deviates from its course, those who were wrong or who did not see it coming do not lose the opportunity to return to the charge and plan for the worst. But this certainly will not happen this time. Besides, the same people remained curiously silent for a year before the irresistible rise of publicly traded securities. Between June 2014 and the peak, a year later on June 12, 2015, the index of Shanghai Stock Exchange increased from 2070 - level around which it fluctuated over one year - to 5300, before falling sharply in three weeks reaching 3500, and going back in a few days to 3825. Despite these fluctuations it went up 90% in one year. This sudden fall triggered some concerns and the most alarmist comments.

But the rise that preceded it should have even more intrigued the commentators. It was the result of the will of the Chinese authorities, to take a further step in the liberalization and international openness of the Chinese economy. On the one hand, there were large public industrial groups and banks, under the close supervision of the State, even if they were traded. And on the other hand, much like in the US fifteen years ago, a bunch of innovators, not only in the web industry, who created their company and decided to trade it. But financial markets played then an entirely marginal role in financing the economy. Most actions (known as A) were reserved for Chinese investors. In 2014, the new government decided to change regulations to facilitate market access, increase its liquidity and give it a greater place to provide equity to businesses. The highlight of this policy was at the beginning of November 2014, when connection was made with the Hong Kong stock exchange, opening thereby the Chinese Market to foreign investors.

Curiously, the sharp rise of the market (+ 70% in 2014), which had accelerated late in the year after the agreement with Hong Kong did not attract attention, even though the comments abounded on the slowing down Chinese growth and the resulting risks, including social one, which could affect the country. No one noticed this contradiction between a financial market that peaked and a slowing economy. Nevertheless, there was a simple explanation for this increase: China is not only a great trader and investor but also a compulsive gambler. In Hong Kong, in the 90s, before we can make Internet transactions, it was not uncommon to see crowds before "financial shops" whose windows gave real-time stock quotes and to see speculators rushing to the tellers to place orders. And anyone who went for a little stroll through the parks of Beijing or any Chinese city could attend fevered mahjong or dominoes games. This explains that the context was favourable to a development of Chinese stock exchange. Moreover the Chinese saving rate reached 40% on average and the interest rates were low. All this provides the societal, financial and technical explanations of the spectacular rise of stock prices and the sharp correction that followed.

The increase that occurred at the end of the period was largely financed by credit purchases generously granted by banks. Instead of giving rise to a consolidation phase as observed in mature markets, the market experienced a violent fall - as soon as the atmosphere changed - amplified by margin calls. The reaction of the authorities was brutal (prohibition of sale to the holders of more than 5% of the capital of a company, quotations suspension of a very high number of titles, etc.). Consequently, it has worsened the situation because you do not cure someone sick by breaking the thermometer. In defence of the Chinese leaders, we must invoke their inexperience. One does not create overnight a major international financial place. It takes time and experience to adjust to situations and to learn from them. Instead of trying to control the evolution of the market as the Chinese authorities did, they need to learn how to prevent its excesses. We bet that the current events will serve as a lesson.

What might be the consequences for the Chinese economy of this market storm? There are marginal. First, the dramatic enrichment of tens of millions of new shareholders remains, although the recent decline has reduced it. Only the last market entrants, especially if they financed their purchases on credit, have been severely penalized. But they represent a tiny fraction of China's population. We are, once again, faced with the delicate question - which economists stubbornly refuse to consider - that is the influence of the balance sheet situation of economic agents, namely the relationship between their assets, their liabilities, their behaviour and the overall economic balance.

It is clear that during the period of rising - and it was spectacular - there was no acceleration of the Chinese growth due to consumers’ reaction to the development of their estates. The "wealth effect" did not play. It is therefore almost certain that there will be no adverse effect as a result of the current correction. And we can not rule out, however, that Chinese households, stung by this episode, take fewer risks and ultimately consume a bit more in the future, which would be good for the economy. In addition, the considerable gains accumulated over a year have created some margins.

The way we look from France at the Chinese economy and its development must be divested of our prejudices. This is not because the West had nothing to do with the success of the reforms initiated by Deng Xiaoping thirty years ago, and that we have not anticipated their success that we must remain in denial. China is now an economic giant. Instead of challenging the evidence, we should look for ways to profit from this situation by offering this country what it still lacks.