China Crashing: Shanghai Composite Tumbles Most Since 2009

Tyler Durden's picture

Those who have been holding their breath until China joins the overnight market fireworks can finally exhale.

Following yesterday's unprecedented formal announcement of epic capital misallocation, the PBOC tried to continue the damage control when a few hours ago it announced that Chinese banking system liquidity "is at a reasonable level", but that banks must control liquidity risks from fast capital expansion, especially credit expansion, according to a statement on management of banks’ liquidity on website. The implication: no easing any time soon, and sure enough no repo or reverse repo activity was logged in the overnight session meaning Chinese banks, for the time being, continue to be on their own, without any hope of the central bank stepping in to bail them out.

The PBOC announcement appears to have restored some stability in the interbank market if only for a very brief amount of time: the 1 Month SHIBOR drops 234 bps, most since Oct. 2007, 7.3550%, with the one-day repo rate falling 204 bps to 6.6540%. Longer-term liquidity also improved modestly, with the seven-day repo rate drops 159 bps after sliding 237 bps on June 21. However, as Market News reported , the PBOC won’t cut reserve ratio, interest rates in near term, and if anything will just use more open-market operations. The problem with this kind of opaque intervention is that it once again raises the specter tha behind the scenes one or more banks are getting direct bailouts. In other words, look for real interbank liquidity to be abysmal at best.

Not helping the PBOC's credibility was the news that China Development Bank canceled a bond sale up to CNY20 billion planned for tomorrow for "reasons."

Certainly not helping China was that late on Sunday Goldman cut its China growth forecasts for 2013 and 2014, "on the account of soft cyclical signals and recent tightening of financial conditions. We now expect real GDP growth to be at 7.5% yoy in Q2 2013 (from 7.8% previously), and 7.4% and 7.7% for 2013 and 2014 respectively (from 7.8% and 8.4% previously)."

End result: the Shanghai Composite, which had largely been able to weather the recent dramatic shocks to both liquidity and the economy, finally threw in the towel and crashed. Moments ago the Shanghai Composite fell 5.5%, the biggest intraday slide since August 2009, and dropping below 2,000 for first time since December.

The brodest China index is now down 14% year to date, with the Property Index leads slump with 7.7% drop to lowest since November.

Needless to say the world's second largest economy imploding, and its stock market crashing were enough to send all of Asia lower, with the Nikkei225 unable to sustain gains on a weaker Yen, and swining from up over 1% to down 1.3%. As for that China derivative, Australia and specifically its currency the AUD, it just hit a fresh 52 week low against the USD at 0.9155.

Of course, if the BIS's warning about what is coming to the "developed markets" is accurate, this is nothing but a pleasant rehearsal of what one can expect in the US and in other G-7 places.

As for China, if Goldman is correct, look for much more pain below. Here is the summary of the firm's downgrade of the Chinese economy:

We are cutting our China growth forecasts for 2013 and 2014, on the account of soft cyclical signals and recent tightening of financial conditions. We now expect real GDP growth to be at 7.5% yoy in Q2 2013 (from 7.8% previously), and 7.4% and 7.7% for 2013 and 2014 respectively (from 7.8% and 8.4% previously).


The recent tightening of the interbank market has sent a strong policy signal that the strong credit growth earlier in the year will likely not continue. We estimate this to tighten the FCI by another 30-40 basis points (bp) in the coming months, in addition to the FCI tightening of 100 bp so far this year driven by the rapid CNY appreciation on a trade-weighted basis.


The liquidity tightening is another indication that the new government has put priorities on tackling the structural problems. These policies help to foster more sustainable medium-term growth, but will test the government’s tolerance for a cyclical downturn. A reversal of the recent tightening is the main upside risk to our new forecast. Continued DM stagnation or spreading overcapacity problems will imply downside risks.

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philipat's picture

Gold Bitchez....

YuropeanImbecille's picture

Bernank will inject 2.9 jigga-trillions into the PBoC

MisterMousePotato's picture

Revenge for Snowden? Hope China shows the bamster and bb the wonder bee what they can do with 3 tril of us treasuries.

Please? Oh, just, please. For once ... just for once, make this an interesting news day.

Then I'll be good. I promise.

MisterMousePotato's picture

Definitely revenge for Snowden. (And, no, I may have replied to myself, but I didn't give me a green booger.)

Harlequin001's picture

It's bounced, only down 5.29% now....

Crisis over.

Disclaimer: I love the NSA, I think they're fucking fabulous..... just sayin'... for later use at any subsequent trial, or formal enquiry...

Nobody For President's picture

Trial? hahahahahahahahahahahahahahahahahahahahahahahahahahahahahahahhahahahahah

You're shittin' us, right?

Cant see me's picture

A proper trial followed by a proper hanging.

Colonel Klink's picture

Yep, all enemies of the state will be declared guilty by executive order.

Muddy1's picture

"In keeping with its firm Christian values, after Hong Kong slapped the US on one cheek yesterday when it allowed a passportless Snowden to leave the country for Moscow, the US has now turned the other cheek. And RUssia's Vladimir Putin was happy to oblige with a perfectly placed uppercut. As the WSJ reports, the Kremlin said Monday that it won't intervene in the case of former U.S. government contractor Edward Snowden and that Russia had no advance knowledge of his arrival from Hong Kong on Sunday. President Vladimir Putin's spokesman Dmitry Peskov said that a decision about holding Mr. Snowden and sending him back to the U.S. to face charges wasn't a matter for the Kremlin."Snowden did nothing illegal in Russia. There are also no orders for his arrest through Interpol to Russian law enforcement agencies,""

CrashingDollars's picture

Right here benny, over the left buttox.  That's the spot.  I can feel the surge of energy already.

Bananamerican's picture

"Bernank will inject 2.9 jigga-trillions into the PBoC"

....and I STILL won't be able to get a decent pair of running shoes...

e-recep's picture

a quick idea for the chinese :  liquidate your USTs.

Peter Pan's picture

Now now, don't be nasty. But in any case liquidate them into what, US Dollar bills, Euros......? I sense we are making some serious effort in seeing reversion to the mean.


Supernova Born's picture

Liquidate paper to gold. Gold being manipulated down makes it all the sweeter.

World goes boom.

Odd to think it is the adult behavior of the Chinese that may save the world.

Non Passaran's picture

The idea has been discredited before.
You can't "liquidate" shit when UST's are denominated in $.
Someone has to buy, otherwise you can't sell.

Supernova Born's picture

There is another name for something that can't be sold.


Sudden Debt's picture

There's a old Chinese saying that goes like this:



Dr. Sandi's picture

China is getting rid of their USTs at a rapid pace. They're using them as collateral in all kinds of major building projects in Africa, Asia and even Europe. Even a few billions in the U S of Eh.

Great plan, really. Rather than dumping them on the market, they stick big Western finance with their own hot potatoes in exchange for financing of real infrastructure and other capital projects.

When the giant flush happens, the Chinese will be left holding solid things of value while the world wide banker wankers get to keep more UST papers than they'll ever be able to peddle.

So what's Mandarin for "Keep the change"?

RmcAZ's picture

And UST getting crushed again, 10 Year at 2.62. 5 Year jumping 9 bps.

MisterMousePotato's picture

Definitely revenge for Snowden.

The Shootist's picture

Oil again running circles around gold and silver. I feel crude might take a BIG plunge soon.

Navymugsy's picture

Somebody's going to blink this week. I wonder who it will be?

MisterMousePotato's picture

Well, bammy is a fag, sinking in the polls. And even in good times, and at his best, he was only good at bullying those with the foot of the state on their neck.

Colonel Klink's picture

Complicit patsy, thus no patsy at all.  He's intentionally ruining America and destroying the Constitution.

Money 4 Nothing's picture

Hopefully that blink you mention doesn't come from an Admiral in theater on one of our Aircraft carrier groups loitering the _________ Ocean.

That rogue boomer is still patroling our GOM that may prove to become a real bad sunblock day.

God Speed, but either outcome besides cold war stalemate, this doesn't end well. Sorry I couldn't have been better service to my nation instead of the banks.

Triple A's picture

Ruhhhh roooohhhh. I thought building ghosts towns was a great idea.

OpenThePodBayDoorHAL's picture

I read a good commentary that said that the new guy Wu Flung Poo or whatever his name is, is a real old-line Commie. Now that the housing stock is built he's gonna let the banks and SOEs and WMPs crash. Then The People step in and get the buildings for free. The 81 *billionaires* in the ChiCom Party Central Committee (yes 81) have already got their pile in Vancouver real estate or Monaco or wherever. Let it crash, then let the peasants live in the housing blocks. They officially had 158 *million* people move from the country to the city last year, that's alot of grumbling peasants to placate...

cherry picker's picture

King and Feinsteing probably caused the fall in the indexes because they're pissed at Snowden and China as they let him go  :)  The sonovabith king calls those who signed the petition to pardon Snowden a very small minority in a country of 300 million.

I suppose this financial mess China finds itself in will work its way back here and unemployment will sky rocket.

If you think the Ethic of Reciprocity is not valid anymre, think again.


Peter Pan's picture

It would be both ironic and sobering if China was to allow the free market a greater level of say in normalising what is otherwise an unsustainable situation. America and Europe take note. 

We live in strange times where the market is the recipient of too many contradictory signals and interferences and where computer screens are the new weapons and the bonus hungry traders are the mercenaries that have no allegiance to anyone other than to themselves.

We can be sure of one thing however, and that is that China must have Plan B and Plan C if things go wrong. They might even be ready to unveil a new gold backed currency.

Bananamerican's picture

China, like the united states, is a command economy that couldn't find it's own ass with two hands and a geiger counter

Peter Pan's picture

I agree with what you say in view of empty cities, polluted cities and rampant inequality. However, the Chinese leadership might just sit back and allow the market to install sanity and democracy as a last measure. They have seen what manipulation does so they might be tempted to allow market forces to have a try.


MisterMousePotato's picture

You know ... speaking absolutely, you might (*might*) almost (*almost*) be right. But, speaking comparatively ... ?

I mean, you're talking Nancy Pelosi. Maxine Waters. Chuckie Schumer and Barney Fudd. Islands tipping over Cunningham (?) and a cast of hundreds, if not thousands, of patently uneducated fools here in the U.S. All of whom are, to boot, insatiably greedy and corrupt and perverted and sick and sadistic and venal and vain and, well ... I guess this could go on for too long.

Well, although the Chinese, either individually or collectively, do not impress me overmuch (and are quite obviously just as venal and corrupt as our own [at least in some ways]), nevertheless, I have yet to see any quite so overtly clownish a figure as any of the few aforementioned. Moreover, say what you will about them (and/or their methods), they accomplished, at relatively little cost and in just a decade or two, what it took us hundreds of years to accomplish.

Frankly, if this was a two-horse race of intelligence (only), I'm not sure I'd place my money on the Americans (versus the Chinese).

Non Passaran's picture

> Islands tipping over Cunningham

Please use proper terminology. Islands-*capsizing*.
It's Hank Johnson, by the way.

MisterMousePotato's picture

See? Just proved how stupid Americans are, didn't I?

FreedomGuy's picture

Actually, all major economies in the world are command economies. There are no significant free economies any more.

Here is the fundamental problem: All economies are based on some kind of "stimulus" at this time. Generally speaking it is artificially cheap money, bad loan protections, direct injections, stinky debt deals, default swaps, etc. The whole economy is locked into these stimuli and as soon as you even hint at the smallest tweak everyone will head for the exits. Look at Bennie B. when he said later he might ease the easing. China is the same.

Zero interest, deficit spending, QE, etc. are all traps kind of like a ratchet. Once you ratchet down it does NOT reverse...not without major pain.

kurt's picture

No bailout, good thing.

cloudybrain's picture

i already buying the dips

Yen Cross's picture

     We should have some good volatility this week. Eight of the Fed. sock puppets are speaking. Here's the schedule.


  • Richard Fisher: Monday, 1:00 p.m. ET (1700GMT) Fisher is a hawk and a non-voter in 2013
  • Narayana Kocherlakota: Wednesday, 1:55 a.m. ET (0555GMT… why so early in the morning? He is speaking in Seoul, South Korea) Kocherlakota is a dove and a non-voter in 2013
  • Jerome Powell: Thursday, 10:30 a.m. ET (1430GMT). Powell is on the Board of Governors and is hence a voter in 2013
  • Dennis Lockhart: Thursday, 12:30 p.m. ET (1630GMT)Hawk, non-voter in 2013
  • Jeremy Stein: Friday, 8:30 a.m. ET(1230GMT) Stein is a centrist/dove, is on the Board of Governors, and is hence a voter in 2013
  • Jeffrey Lacker: Friday, 9:15 a.m. ET (1315GMT) Hawk, non-voter in 2013
  • Sandra Pianalto: Friday, 12:00 p.m. (1600GMT) Hawk, non-voter in 2013
  • John Williams: Friday, 3:30 p.m. ET (1930GMT) Dove, non-voter in 2013


unirealist's picture

The Great Liquidation is in full swing, after a four-year pause.

Don't be shocked to soon see gold in the nine-hundreds, and silver at $15 per ounce.  Along with more divergence between paper and physical, with physical gettting harder and harder to find until suddenly... the US Mint suspends all sales.

That's when all hell breaks loose.


Non Passaran's picture

Sure those price levels are a possibility but I think we've been in the "don't ask, keep stacking", no-brainer area since $1500/$25 and I am not too interested in guessing the exact bottom. I buy every month as soon as get my paycheck. If the price goes where we think it will, your average purchase price will be almost irrelevant as long as you bought it before TSHTF.
Who can say FedEx (and others) won't stop accepting PM shipments like someone said just happened in the EU? Or that the government won't come up with some BS new rule meant to "protect" the stackers. Screw that...

AmCockerSpaniel's picture

It's just not Gold, but all the metals (Silver Platinum Palladium) that are getting slammed. Check the charts at Kitco.

WmMcK's picture

Pd : Ag ration > 34, the "slammings" are not proportional.