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China Loses All Control, Spends 600 Billion Yuan On Plunge Protection In August, Tightens Capital Controls
Back on July 20, Caijing reporter Wang Xiaolu suggested that China Securities Finance - the state-owned plunge protection vehicle - may be set to exit the market. That sent futures plunging and ultimately led to Mr. Wang’s arrest late last month. Under duress, Wang would later “admit” that he “shouldn’t have released a report with a major negative impact on the market at such a sensitive time.”
Of course Wang wasn’t the last person to speculate about how long China would be willing to spend billions propping up the market, and indeed it certainly seems as though Beijing tried to scale back the manipulation two weeks ago only to see the SHCOMP crash 8%, a move which promptly triggered a global rout of epic proportions. One additional 8% decline and a dual policy rate cut later, and CSF was back in the market desperately trying to arrest the inexorable slide ahead of Xi Jinping’s lavish military parade on September 3.
So in case anyone still harbored any doubts about the degree to which China most certainly has not wound down the plunge protection effort, Goldman has updated its analysis on the “national team’s” efforts on the way to concluding that China spent an additional CNY600 billion propping up the market in August.
Here’s Goldman:
In our note: China musings: How much has the government bought in the market? (Aug 5), we estimated potential government purchases in the stock market based on: (1) our top-down liquidity model; and (2) bottom-up analysis on fund flow changes in key investment channels based on public information released by relevant media sources. Our last estimate published in early Aug (based on July month-end data of 5 liquidity factors) was Rmb900bn, largely consistent with the July monetary data release which showed Rmb900bn of non-bank financial institutions lending and we suspect a majority of which went to China Securities Finance Corp (CSFC) which has been directly supporting the market during the correction. Using our top-down model and refreshing inputs based on Aug month-end data, we estimate that the “national team” has spent another Rmb600bn in August, raising the potential aggregate amount of buying to Rmb1.5tn, representing 3.5% and 9.2% of current total and free-float market cap.
And based on history (and probably also based on what we know about China’s unwillingness to relinquish control), the effort isn’t likely to end any time soon:
Overall, we reiterate our view that the lingering market concern over the Chinese government’s potential exit from its market support is probably overdone based on cross-country experiences, including the intervention from HKMA in Aug 1998 and the Quantitative Easing in the US since March 2008.
Speaking of futile attempts on the part of Beijing to manage expectations and get control of a potentially disastrous situation, MNI is out reporting that in the wake of the August 11 deval, SAFE began “urging” Chinese companies to “actively take measures to limit foreign exchange purchase for advance payment under imports... and postpone forex purchases.”
Although MNI does note that this represents more of a tightening of existing measures than it does the imposition of new capital controls, the writing on the wall is clear. That is, it’s all about capital controls at this point (as we tipped last week) as China desperately needs to stem the outward flow if it wants to limit costly interventions to stabilize the yuan, interventions which, as we learned on Monday, led directly to the liquidation of $94 billion in FX reserves during the month of August alone. “SAFE said the focus is outbound direct investment and remitting money overseas. It ordered branches and banks to check whether such investment is genuine, including the source of the money and where the money is being invested,” MNI adds.
As we said earlier this month, "while China is doing everything in its power to not give the impression that it is panicking, the truth is that it is one viral capital outflow report away from an outright scramble to enforce the most draconian capital controls in its history, which - as every Cypriot and Greek knows by now - is a self-defeating exercise and assures an ever accelerating decline in the currency, which authorities are trying to both keep stable while also devaluing at a pace of their choosing. Said pace never quite works out."
And the same goes for the stock market. The more authorities have to intervene, the more readily apparent it becomes that the market can't stand on its own which only serves to undermine investor confidence leading to more selling pressure, necessitating still more intervention, until finally, Beijing will either be a majority owner of every mainland listed company or else will simply halt the entire market until such a time as the Politburo believes people's "malicious" propensity to sell has subsided.
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What is the budget of the US PPT team? Why do we never hear about how much they spend?
Truth is treason in an empire of lies
Maybe that cyber financial warfare s already underway. China was a tinder-box.
They used to be full-on communist, with the State owning everything.
It just looks like they're heading back that way to me.
it's like watching clowns implement the Tarkin Doctrine for financialization...
"The more you tighten your grip, Tarkin, the more star systems will slip through your fingers."
The Ziomedia only reports negatively on market manipulation when the Chinese do it.
Can they contine buying this shit from themselves once the "republic" owns all the stocks?
They do realize there has to be an end to this farce at some point, do they?
I can't help myself, but the whole concept of QE is so ridiculous to me - I can't fathom how anyone could think it would be a good idea to buy overpriced overbought stocks with taxpayer money just to keep the farce going a little longer. Probably the worst investment ever, forced upon the taxpayer for the sake of the 0.1% who need to sell their stock holdings at record valuations. As Marc Faber said: economic sophism at it's best. I'd go further and call it a proper scam.
This shit is going to be expensive. Some folk not gon' be all too happy about their future debt obligations.
it's whatever the fuck the US needs it to be... because, reserve currency...
Port Explosion in 3..2..1........
time to dig a whole lot of holes.
best,
PK
Laugh-a-Bull.
600 billion is chump change
If selling is a jail offense or worse, then the government will be the only buyer left, converting the stock "market" into a museum.
I think you mean: "converting the stock market into a free market bastion and shining example of broad shouldered capitalism"
Never did understand what a stock, really was, supposed to be ownership of a piece of a company, but it sure looks a lot like an arbitrary piece of paper that somebody says is worth something and sells back and forth between each other.
Think of shares as poker chips
which can't be cashed in
https://www.youtube.com/watch?v=773E6GPll3A
so stick to the slots....
This could never happen in our free markets.
PPT was formed on March 18, 1988 by Reagan. Apparently, it never spends any money to prop up the free and fair markets in the land of the free. Only the stupid Chinese have to spend money to prop up markets. Only the stupid Chinese have to ban trading by Citadel, the unofficial arm of the Fed.
If western stock markets ever go down again, it's only because "the chinese contagion is spreading to the west". We always need a scapegoat, nobody is ever going to admit the AAPL market cap shouldn't go near infinity.
What a load of horseshit.
I must confess I bought into China's economic miracle, believing they weren't as stupid as the West. Maybe this is further proof that Keynesian economics is a total fraud as practiced today. Government intervention in the markets is an anathema, yet the Chinese state intervenes. Has last 30 years of economic doctrine and dogma been a complete lie?
Last 30 years a lie????? Shit, your great great great great great gran pappy was also living a lie.
Human Behavior:
https://www.youtube.com/watch?v=KDbPYoaAiyc
Guess the Fed and US .gov will have to hold a yearly convention for central bankers. Must show them how to properly rig markets and steal.
"Has last 30 years of economic doctrine and dogma been a complete lie? "
In a word, yes.
America died when Nixon removed the final peg to gold and opened up China to take over U.S. based manufacturing. Decomposition just took awhile.
Nope, America died when the ZioBanksters had JKF murdered, and then had the CIA coin the term "Conspiracy Theorist" in 1967 to attack anyone who questioned the Government's account.
The American government does the same thing with agricultural products. It uses tax revenues to smooth out the variations in the money received by the farmers from year to year with price supports. Is it that dramatically different to provide this same service to investors with stock market price supports?
You can eat food. What has Google got to eat?
you
"The American government does the same thing with agricultural products. It uses tax revenues to smooth out the variations in the money received by the farmers from year to year with price supports. Is it that dramatically different to provide this same service to investors with stock market price supports? "
Ah, yes, the strawman: "They do it to protect the producers of the nation's grains and processed foodstuffs, why not do it to protect the producers of the nation's producers of poker chips and derivatives?"
Maybe because one vocation is generally predicated on the providence of nourishment and the other is generally predicated on speculation in share prices?
Inflation in asset/share prices creates inflationary pressure in agricultural inputs and thus foodtuffs -exactly what impoverishes the populace of which few own stocks and all require nourishment.
They do it because they know exactly what it does
Politburo is not failing.
It is only giving the impression that they are failing.
They want wipeout but they don't want to get blamed for it.
They will get wipeout and they will blame others. No worries
The coming coup in China:
http://www.the-american-interest.com/2015/02/26/the-coming-coup-in-china/
It's about as likely as a coup in the USA.
I wonder what Goldman's estimate is for Fed interventions not including its trading "profits" from activities like selling Puts on bonds knowing it would lower interest rates
This is a pretty clear case of Sorosity Porosity - China is leaking Yuans out every pore. The reflex / reflexivity at this juncture is clear - to not lose face, don't let your face get ripped off.
The regime's actions have an interesting parallel in the famous story of Ah Q. Seems market forces relative to government actions are bordering on a belief system rather than anything functional.
https://en.wikipedia.org/wiki/The_True_Story_of_Ah_Q
Headline correction: China government bails out family and friends
That money does not get lost, it just changes hands!