China will come to decide if there are better ways to utilize the new wealth of its growing rich class

What is done cannot be undone.

The regulatory regime's excessive tolerance in the early months of the year with the hectic buying of shares, often on reckless borrowings of money, cannot be undone. And, following it, the central government's political check at the beginning of July on a massive, near-panic sell-off of stocks also cannot be undone.

The fact is that, in China, the government and the market are always (well, over the past two decades) closely interdependent.

Even though one can read in nearly every economics textbook that the government should concentrate on the more important public affairs and let the market do its work, the actual starting point of China's market-oriented economic reform was a central planning system that treated the market as a counterproductive force, if not an enemy. There was little understanding, let alone appreciation, of the market forces, nor for that matter society's spontaneities.

A way of thinking inherited from that beginning is that, whenever a large number of people are involved or affected, that is to say whenever something grows in public significance, the government will take it as a political matter and interfere with it with measures that, at times, will surprise both governments and markets (participants in the market) in other countries.

What happened in the Chinese stock markets, from the regulators' non-interference with the so-called leveraged bull market from March to May to the crackdown on business in July, as orchestrated directly by the premier's office, are just new examples of such government-market interdependency, or a "market economy with Chinese characteristics".

That gives rise to two questions. One is on the more metaphysical level - as to whether the interdependency is entirely true. Many liberal intellectuals don't want to believe it's true. Hence, more often than not, people hear the criticism that the central interference is too harsh or even completely unnecessary.

But, again, what is done cannot be undone. Debating whether the government should be so harsh in its interference, and by what standard the harshness can be measured and determined as appropriate, is purely academic. The debate will bring about long-term benefit, but those who hold real-time business interests in the China market will want more straightforward, and hopefully quick, solutions.

That leads to the second question: How to improve on what is done, even if it is considered by some people as too harsh or even widely criticized as ill-advised?

The Chinese are traditionally better at mending cracks in a system than getting off to a well-structured start. Now it's time, after all the things that are done and cannot be undone, to design some ways to mend the Chinese financial markets (not just the stock market).

People should have a clear recognition of the fact that this is no longer a society divided by a centralized government and the "old hundred names", meaning ordinary people.

Despite all the signs of poverty remaining from the past, there is a layer of society that holds fairly large economic weight, joined by the most active and creative individuals of a 1.4 billion population, including those from Hong Kong, Taiwan, and overseas Chinese communities.

More recently, this financial power has been added to by large corporations from China, private and state-owned.

They come with their money to look for new opportunities. Matching their desires with national development programs and priorities is what the government wants. No one can say it is not a legitimate want.

But the difficult part in the government's attempted stewardship is that, at times, money goes its own way and can multiply - on a massive scale - the effect of any government policy, good or bad.

Industry specialists have proposed many changes that China can make to its securities regulatory regime, including efforts to limit the scale of leveraged investment and financial futures. Those are the technical measures to just play safe. They are all necessary, but they may be readjusted from time to time.

More strategically, China will come to decide if there are better ways to utilize the new wealth of its growing rich class, other than simply letting it flood the stock market or driving it all out. Designing investment instruments and markets that are easy to monitor and guided in useful directions will be an even bigger challenge to the Chinese government.

The author is editor-at-large of China Daily. Contact the writer at edzhang@chinadaily.com.cn

(China Daily European Weekly 07/17/2015 page13)