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Underneath that impressive effort was a rapidly shifting stock market that has come to resemble those of Western countries. Just 10 years ago, oil drillers and major banks dominated China’s market. Today, companies operating in the technology, consumer discretionary, and communications sectors rank among its largest publicly traded firms.

Relatively strong performance and access to a growing pool of publicly traded stocks have pushed China’s market into a precarious position among its emerging-markets peers. It accounts for one third of many emerging-markets indexes and the exchange-traded funds that track them.

Ulterior Motives

Government interference isn’t a new source of risk in emerging markets. Other recent examples include Russia’s mandated dividend payouts from its state-owned companies, or Brazilian politicians that personally profited from bribes at state-owned energy giant Petrobras.

Those cases are directly tied to state-owned companies, where the connection between government actions and company performance is more direct. Politicians who serve in executive roles or on boards of directors at state-owned firms may influence operations in ways that compromise earnings but benefit a country’s economy or its citizens.

In a similar fashion, China’s government has not hesitated to meddle with domestic businesses to achieve its political ambitions. Late last year, the central party halted Ant Group’s IPO. A few months later, it mandated that several publicly traded education companies change their status to nonprofit organizations. Neither event was good for investors, nor did they build confidence in China’s market.

While the potential for interference isn’t new, the scope has changed. Unlike the other examples from Russia and Brazil, the recent actions of China’s central party were aimed at private companies. That sends a big message by demonstrating that the government won’t limit its interference to state-owned enterprises.

However, it does help to consider China’s position in the global market. Chinese stocks account for just 4% of global market capitalization and have a long way to go to catch up to the U.S. market’s 59% stake. In the context of a globally diversified portfolio, risks specific to Chinese stocks remain relatively small.