WADE GOODWYN, HOST:

We've heard a great deal this week about China's stock market, which has taken investors for a wild ride. Since mid-June, the market has lost $3 trillion in value. Experienced investors are used to riding such ups and downs, but as it rose to a seven-year high, China's market lured in millions of middle-class Chinese who were new to investing. Many borrowed money to get into the game. These investors helped fuel the frenzied rise. Now, they are the ones taking a big hit. We are joined from Beijing by Tom Orlik, Bloomberg's chief Asia economist. Welcome to the program.

TOM ORLIK: Thanks for having me, Wade.

GOODWYN: Who is this new investor?

ORLIK: So, for me, one of the most striking data points about the recent rally in the stock market came from a major nationwide survey of household investors. It discovered that the average old investor in the stock market - he was a white-collar professional, university educated. The average new investor - the average guy who piled into the market trading on momentum after the rally started - they had a lot less money, maybe not a white-collar job, and the most striking thing was that their average education level was high school dropout.

GOODWYN: Can you talk a little bit about the trap that the new investors have found themselves in as a result of this, you know, almost historic downturn?

ORLIK: The concern really is that investors who piled into the market expecting it to continue to rise were ill-equipped to understand the mechanisms driving the market, and in some cases, their position was made more difficult by making investment with borrowed funds. Now, when the market was on the way up, that redoubled their gains. When the market was on the way down, it redoubled their losses.

GOODWYN: I understand that some of this has to do with extensive cheerleading by the Chinese government, urging the Chinese to get on board the stock market. Is that correct?

ORLIK: There was a lot of enthusiasm for stocks in China's press in the second half of 2014, and I think, for some retail investors, that was interpreted as a kind of official sanction to wade into the market. Now, of course, as the market has headed south that then damages the credibility of the market cheerleaders.

GOODWYN: Has this made the government nervous?

ORLIK: I think the evidence of what we've seen in the last week or two is that it's made the government very nervous. We've really seen an unprecedented ratcheting up of government intervention in the markets - suspension of trading some more to the thousand stocks, instructions from China's securities regulator that major investors have to hold onto their investments without selling a single share for the next six months, a move by the central bank to inject liquidity into the market. So all of that concerted effort by different parts of the Chinese government really speaks to a coordinated effort by a government who's determined to not let the market slide any further.

GOODWYN: And the government has very deep pockets if it decides it wants to intervene that way. Might it?

ORLIK: So the evidence of the last couple of days is that the massive intervention we've seen by the policymakers has been enough to arrest the market slide. We've seen a rebound on Thursday and a further climb for the Shanghai Composite Index on Friday. The question really, though, is where does this leave China's longer-term reform agenda? President Xi Jinping, Premier Li Keqiang said they wanted to move away from a state plan-dominated economy to an economy where the market played a much larger role. Well, that process was going pretty well, but the signal, which the huge intervention in the equity market has sent in the last few days, is really that there's a limit to Beijing's willingness to let the market play that decisive role. And the risk, then, is that that massive government intervention is going to dent confidence in China's longer-term reform agenda.

GOODWYN: Because they're only willing to see the stock market go down so far so fast.

ORLIK: Exactly. We're happy to let market forces work on the way up. On the way down, we're not so happy.

GOODWYN: Tom Orlik, Bloomberg's chief Asia economist based in Beijing. Tom, thank you so much.

ORLIK: Thanks, Wade. Transcript provided by NPR, Copyright NPR.