In Economics, What Is Shock Therapy?

The medical term "shock therapy" was introduced to the economic realm by American economist Jeffrey Sachs in the mid-1980s. This was done while Sax was employed as an economic adviser to the Bolivian government.

Shock therapy

(Economic Concept)

The medical term "shock therapy" was used by American economists in the mid-1980s

Shock therapy in

Failure of shock therapy in Russia

At the end of 1991,

With the joy of winning the first battle, Saks rushed to Russia and Eastern European countries that had just undergone political upheaval and continued to sell his shock therapy. However, compared with the original shock therapy he sold this time, it added a new meaning, that is, in addition to completing a stable economy and inhibiting

First, the emergence of shock therapy requires certain objective conditions.

The implementation of shock therapy and the generation of expected effects require a certain objective economic environment and conditions. These objective circumstances and conditions are not available, and will inevitably play a certain role in restricting the implementation process and effects. The reason why shock therapy is

Shock therapy background

From mid-2012 to April 2013, in the ups and downs of the stock market, the hotspots continued to change, but the issue of new shares has always been the focus of the market. First, it was identified as the culprit in the continuous decline of the stock market, and was criticized by various parties. Then, after a substantial suspension, it created a "dam lake" for the stock market.

Since the second quarter of 2012, the stock market continued to slump, and investors saw no hope. But in sharp contrast to this, the enthusiasm of the company's IPO is undiminished, and the lineup is longer and longer. Investors do nt make money, and financiers do the right thing. This contrast exposes the disadvantages of the A-share market in terms of heavy financing and light investment.

Many people believe that it is the steady stream of new corporate listings that has drained stock market funds and affected investors' expectations and confidence in the future. The IPO should be suspended immediately to allow the stock market to rest. As the stock market continues to fall, this call is getting higher and higher. ^[1]

Analysis of shock therapy problems

Business cycles and market laws are the most important factors that dominate the rise and fall of stock indexes. It is impossible to forcibly change and reverse the rhythm of the IPO. The moratorium on the issuance of new shares interfered with the normal procedures of the market operation, not only hindered the direct financing function, but the formation of the "dammed lake" also exacerbated investor panic.

Protecting the legitimate rights and interests of investors is the top priority of the regulators' work. Investor losses are often the reason for suspending IPOs, but fundamentally, the reasons for investor losses are the immature securities market and the degree of marketization in China. High, endless speculation, investors blindly follow the trend and so on.

Suspending the issuance of new shares is a distortion of the functional positioning of the capital market. The contradiction between administrative style and marketization will really hurt investors 'interests. Investors' panic about the expected opening will really affect market psychological expectations and stock index trends.

At the same time, the temporary issue of new shares has exacerbated the "financing difficulties" of small and medium-sized enterprises. The queuing companies have already paid huge costs for the shareholding reform and corporate governance of the listing. The suspension on the one hand will increase the financial costs of the enterprise, and on the other hand, it will easily make the corporate financing expectations slim and funds The urgency of the chain will make matters worse for many small and medium-sized enterprises.

Rectifying the contradictions in the stock market did not happen overnight. The "shock therapy" of suspending the issuance of new shares not only failed to resolve the existing contradictions, but also exacerbated the formation of new market problems. "Developing problems need to be solved during development." The problems of China's stock market also need to be gradually explored and improved in the course of development, and finally a path suitable for China's national conditions is finally taken. ^[2]