Perhaps it’s a case of something getting lost in translation (so to speak), but Chinese authorities have a remarkable propensity for saying absurd things in a very straightforward way as though there were nothing at all odd or amusing about them.
For example, here’s what the CSRC said on Friday about the future for China Securities Finance (aka the plunge protection team):
"For a number of years to come, the China Securities Finance Corp. will not exit (the market)."
For anyone who hasn’t followed the story, Beijing transformed CSF into a trillion-yuan state-controlled margin lender after a harrowing unwind in the half dozen or so backdoor leverage channels that helped inflate Chinese equities earlier this year caused stocks to plunge 30% in the space of just three weeks.
CSF has since become something of an international joke, as the vehicle, along with an absurd effort to halt trading in nearly three quarters of the country’s stocks, came to symbolize the epitome of market manipulation - and that’s saying something in a world where everyone is used to rigged markets.
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And because Beijing wanted to get the most manipulative bang for their plunge protection buck (err… yuan) the PBoC went on to count loans made to CSF [8] by banks towards total loan growth in July. In other words, China acted as is if forced lending to a state-run stock buying entity represented real, organic growth in demand for credit.
[9]
Now, apparently, the practice of using CSF to "stabilize" stocks and artificially prop up loan "demand" will become standard procedure. Here’s more from AFP [10]:
China's market regulator on Friday vowed to stabilise the volatile stock market for a "number of years", saying a state-backed company tasked with buying shares will have an enduring role.
"For a number of years to come, the China Securities Finance Corp. will not exit (the market). Its function to stabilise the market will not change," the China Securities Regulatory Commission (CSRC) said in a statement on its official microblog.
The China Securities Finance Corp. (CSF) has played a crucial role in Beijing's stock market rescue, which was launched after Shanghai's benchmark crashed 30 percent in three weeks from mid-June.
The regulator's comments were the first time it has given any indication of how long it would intervene to support equities.
Authorities gave the CSF huge funding to buy shares and subsequent speculation the government was preparing to withdraw from the stock market has spooked investors.
The statement added the CSF will only enter the market during times of volatility.
”When the market drastically fluctuates and may trigger systemic risk, it will continue to play a role to stabilise the market in many ways," said the statement, which quoted CSRC spokesman Deng Ge.
So essentially, the PBoC will now do precisely what the BoJ does on nearly every single day that sentiment on the Nikkei looks to be slipping. The only difference is that the BoJ doesn't necessarily try to hide the fact that it's amassing a $100 billion portfolio of equities whereas Beijing is keen on maintaining that because CSF's balance sheet is technically separate from the PBoC's, there's "no such thing as Chinese QE." This claim may be getting harder to justify however, because as Bloomberg noted just moments ago, the balance sheet is expanding.
People’s Bank of China’s balance sheet showed that its “claims on other financial corporations” increased 200b yuan in July, signaling lending to China Securities Finance, Shanghai Securities News reports.
“Claims on other financial corporations” consist mainly of loans the central bank extended to financial cos., the report says, citing book written earlier by officials at PBOC’s statistics department.
In any event, plunge protection is here to stay in China, and that's probably not a good thing when it comes to supporting the country's bid for MSCI index inclusion, which means the CSRC is caught between making sure investors don't get the "wrong" message about the government's willingness to prop up stocks and making sure the rest of the world gets the "right" message about market liberalization.
Fortunately, this impossible balancing act is sure to lead to an endless flow of amusing contradictory rheotoric and with that in mind, we'll close with the following quote [11], which you'll be sure to note comes from the very same people who made the comments cited above, on the very same day.
"With market fluctuations gradually shifting to normal, from wild and abnormal, we should let the market exercise its function of self-adjustment."
