The financial market turmoil prompted by U.S. President Donald Trump's tweet-based escalation of the trade war is challenging regulators around the world -- not least in China.
After Trump suddenly said on May 5 via Twitter that he would raise tariffs on Chinese goods by the end of the following week, stocks in Shanghai and Shenzhen tumbled, wiping out hundreds of billions of dollars of market value even as Beijing's censors scurried to suppress mention of the U.S. president's latest declaration.
Their hurried intervention will do little to reduce the pressure on Yi Huiman, the new chairman of the China Securities Regulatory Commission as investors worry that the market's recent short bull run has already come to an end. Despite the tumult since Trump's tweets, Chinese stocks are still up 23% so far this year thanks to the strong first-quarter rally.
A more positive outlook for trade and more robust government stimulus helped drive the rebound, which came after China turned in the worst performance among major global markets in 2018. The strength of the rally and an accompanying big increase in trading volumes gave Chinese regulators confidence to push forward with a slew of overdue reforms.
It was easy for Yi to look confident and talk up reforms in a roaring bull market, but market observers want to see how much his attitude changes now that the wind has come out of the sails of Chinese stocks and gusts have begun to blow them back.
The significance of Beijing's moves since January to lift foreign investment limits across much of the financial sector and create an easier stock listing channel in Shanghai should not be underestimated.
In April, following Beijing's doubling of the overall investment limit under the Qualified Foreign Institutional Investor program, a slew of funds successfully won increases in their allotted inbound investment quotas. Officials approved an additional $1 billion each for two such funds and hundreds of millions of dollars of quotas for many others.
The QFII program has not seen so much activity in at least five years as investor enthusiasm cooled amid occasional market upheaval in China and a shift to using newer and quicker links between Hong Kong and mainland markets.
The surge of interest has not been so much about adjusting for the increased inclusion of Chinese stocks in the global indexes of compiler MSCI as those shares can be accessed anyway through the Hong Kong "Stock Connect" link with the Shanghai and Shenzhen markets.
Rather, QFII enthusiasm indicates foreign institutions are interested in smaller company stocks and upcoming opportunities such as Shanghai's Science and Technology Innovation Board, which is expected to be launched in the next few weeks.
Around 90 companies have filed plans to raise a combined total of more than 90 billion yuan ($13.1 billion) on the new board, which will not limit pricing or first-day trading movements and will permit unprofitable companies to list. This will be a welcome chance for both local and foreign investors to access growth-focused companies that have until now not been a major part of China's stock markets.
But right now the key question for the Chinese market as a whole is whether the Trump shock will mark the start of a major downturn or not. Linked to this is the future direction of U.S.-China relations, which have never looked so uncertain.
For investors in domestic Chinese stocks, the critical point will be how officials at the CSRC and their bosses respond to the market tumult.
A year ago, a violent market fall like that seen on May 6 would have led exchanges to instruct brokers to limit clients' sell orders or stop their trading entirely and prompted listed companies to suspend trading in their shares. This has not happened under Yi.
There has been talk of state funds being deployed to support stocks but not to the degree seen during the market's turmoil in mid-2015 and early 2016. In any case, state-buying is sadly not limited to China and is part of many Asian markets.
Of greater significance will be how the tumult affects loosening plans already announced: will the new Shanghai board indeed get up and running within the next month or will there be delays or indefinite postponements as happened last year with plans for "China Depository Receipts" and before with other reforms?
MSCI's moves to include Chinese domestic stocks and then to quadruple their weighting in its indexes should encourage regulators to stick to their promises. But distrust remains.
To prove itself, the CSRC must hold firm and keep moving forward with its reform plans. Wider access for foreign investors and a more inclusive listing environment are vital for China. Some domestic critics may suggest that opening up only makes China more vulnerable to external boom and bust cycles, but the country has had plenty of those on its own over the past 30 years. Global diversification should, in principle, increase stability.
Regardless, foreign investors must appreciate that openness will not necessarily mean maturity. For the foreseeable future, Chinese markets will remain highly speculative in nature, influenced more by short-term trends and policy pronouncements -- from Beijing more often than Washington -- rather than long-term corporate earnings trends and company strategy.
There has been palpable relief within the CSRC at the market's strong early start this year and reformers appear to have the upper hand under the new chairman. So they have some breathing space. It is important that recent market volatility does not weaken their resolve. It has taken decades to get to this point. Let us hope the opportunity is not lost.
Fraser Howie is co-author of "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise." He has worked in China's capital markets since 1992.