China Promises To Keep Intervening To "Look After" Stock Market "Investors", Hurt "Speculators"

In the most blatant and open admission of direct manipulation, China's Vice President Li told a room full of Davosian elites that China is willing to keep intervening in the stock market to make sure that a few speculators don’t benefit at the expense of regular investors. Following last night's largest liquidty injection in over 3 years (and subsequent plunge in Chinese stocks), it appears the Chinese economic/market "bucket" has more holes than the intervention 'hose pipe' can handle.

Calling the country’s market “not yet mature,” Bloomberg reports that Vice President Li Yuanchao said the government would boost regulation in an effort to avoid too much volatility.

“An excessively fluctuating market is a market of speculation where only the few will gain the most benefit when most people suffer,” Li said in an interview with Bloomberg News after arriving at the World Economic Forum’s annual meeting in Davos, Switzerland. “The Chinese government is going to look after the interests of most of the people, most of the investors.”

 

Li, 65, is the most senior Chinese official yet to underline the government’s readiness to intervene should the market turmoil of last summer and the start of 2016 continue. So far this year, the Shanghai Composite and the Hang Seng China indexes have both lost more than 15 percent, even as the central bankinjects cash into the system to drive down borrowing costs and boost the economy.

 

Li, who sits on China’s 25-member Politburo, led a delegation of senior Chinese officials to Davos looking to offer reassurances about the health of an economy that grew at its slowest pace since 1990 last year. Investors have raised questions about the government’s credibility after a series of reversals, including a decision to abandon a stock circuit-breaker system after plunging prices twice halted trading for the day earlier this month.

 

“On the one hand, we need to make the stock market more dynamic, but on the other hand we also need to strengthen regulation of the stock market, and we resolve to do that,” Li said in the interview, also attended by officials including the deputy chairman of the National Development and Reform Commission.

 

Li’s comments are aimed at the vast majority of investors in China’s stock markets. Individuals drive more than 80 percent of trading on bourses in Shanghai and Shenzhen, versus about 15 percent in the U.S.

 

He was echoed by Fang Xinghai, vice chairman of the China Securities Regulatory Commission, who also attended the interview. Fang said the government intervened last year not to boost stocks as people thought but to pump more liquidity into the market after fund managers sold off shares. The government is prepared to intervene again “if the liquidity problems are quite severe and major and could lead to systemic risks,” Fang said.

 

China, which for so long provided comfort to investors, has become one of its greatest sources of anxiety. The country has shaken confidence with surprise currency moves, confused with chaotic market regulation and struck fear with criminal probes of financial executives. Li’s sought to convince the 2,500 business and political leaders present at Davos that China would stick to its pledge to open its financial markets and that the world’s second-biggest economy remains strong.

 

"The contribution of China’s economic growth to world economic growth remains unchanged," Li said. "So do the long-term trends of sound economic development in China and China’s policy of deepening reform and opening up."

So it is clear that buyers are investors (no matter the triple-digit valuations) and sellers are speculators (no matter the desire to exit the markets ince and for all)...

Those darn speculators!!

But then, in normal Chinese fire-drill manner, Li(e) unleashed the following:

  • VICE PRESIDENT LI SAYS CHINA HAS NO INTENTION TO DEVALUE YUAN.

Finally, here is Bill Gross' take: