Market Failure is a result of the price mechanism failing to account for all the costs and benefits required to provide and consume a good/service. This occurs when market is unable to supply the socially optimal amount of the good or cannot meet its functional responsibilities (Cherian, 2015). Graphically, market failure happens when price cannot achieve equilibrium because of market distortions that holds back economic output.
Yes, government can correct market failures, though the number of past trials and attempts are way higher than those of successes and corrections achieved. Also, government can inadvertently cause market failure; this can sometimes be caused by government regulations that has been done to promote social welfare, by extension even moral hazard. Though note that government failures are much harder to correct than market failure because they are the result of a political equilibrium (“Market Failure”, 2018).
In the case of China, the country’s recent years’ stock-market volatility has had the Chinese government on overdrive, leading to a very state-run market. With a repeated game of “I can beat my last low sometimes BEING PLAYED WITH THE yuan” or the implied stock-direction leadership “buy what China is buying” investment strategy; (Stephen, 2015) it is common knowledge that China is very hands-on with its market, with it so closely intertwined with Chinese political and social stability which has always worried investors, but these increased extraordinary attempts at corrections like becoming the only buyer of its equities, loans, etcetera denotes the Chinese government’s continuous feeble grasps were not working and moves in recent times have started to reflect panic more than much else as the continued disparity between Real Economy(% growth) and Stock market is not closing or adding up (Boskins, 2015). The recent anxieties around trade relations between US and China have not been eased with both countries posturing and sanctioning as recent as this week’s trading; with President Trump threatening to impose $400 billion in additional tariff on Chinese goods, which further escalates tensions and presses the need for long term solutions like economic reforms in China, de-acceleration of its governments gimmicks in the world market etcetera (DeCamber, 2018).
According to Stephen, the dearth has been slow but it is clear that it is an eventuality despite China’s actions, unless reforms are passed and implemented; also the objective calculations and evaluation of market failure are mostly based on a market moderated by supply and demand based on an assumption of free market, China is far from “free market” in its communism driven economic practices.
Reference
Boskin, M. J. (2015). Opinion: What Should China Do To Fix Its Economy. Market Watch. Retrieved From https://www.marketwatch.com/story/what-should-china-do-to-fix-its-economy-2015-08-26
Cherian, M. (2015). What are the areas of market failure? What is the role of government in economics development? Retrieved from https://www.quora.com/What-are-the-areas-of-market-failure-What-is-the-role-of-government-in-economics-development
DeCambre, M. (2018, June 22nd). DOW Halts Skid At 8 Straight Sessions, But Stock Market Ends The Week Lower Amid Trade Jitters. Retrieved from https://www.marketwatch.com/story/dow-halts-skid-at-8-straight-sessions-but-stock-market-ends-the-week-lower-amid-trade-jitters-2018-06-22
Market Failures, Government Failures and the Welfare of Poor People. (2018).
DECRG Kuala Lumpur Seminar Series. Retrieved fromhttp://www.worldbank.org/en/events/2018/02/08/market-failures-government-failures-and-the-welfare-of-poor-people
Stephen, C. (2015). Opinion: Investors Have Big Doubts About China’s State-Run Market. Market Watch. Retrieved From https://www.marketwatch.com/story/investors-have-big-doubts-about-chinas-state-run-stock-market-2015-08-12
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