“A grave mistake,” China steps up support to arrest stock market slide

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The Ultimate Crony Capitalist State is feeling a bit unstable right now. Instability is the great enemy of the Chinese Communist Party. The market mechanism continues to bleed through all across the Chinese economy and Beijing is getting (more) nervous. The state “capitalism” miracle is looking a lot less miraculous these days.

The Chinese stock market is off over 20% since mid June. (Though still up more than that for the year.) A property bubble continues to pop. Exports have slowed. Change is in the air. Of course it’s been in the air before.

Now it looks like China may have deployed its own version of the “Plunge Protection Team” to hold back reality. Thing is reality is reality.

(From Reuters)

That view was echoed by Hong Hao, chief strategist with BOCOM International, who cast doubt on the effectiveness of government support as leveraged stock purchases are concentrated in small-caps, rather than blue chips.

“At this level, stocks are not cheap,” he said. “The simultaneous cuts in rates and banks’ reserve ratios were very strong stimulus. Since that didn’t stop the sell-off, then the market wonders what else the policy makers have up in their sleeves.”

Some worry that if China is forced to rely on monetary policy to prop up the stock market, it risks not having much firepower left to fight off other economic shocks, in particular a collapse in European demand as a result of a Greek exit from the euro zone.

Huang Sheng, an influential Chinese investor, said it was a “gave mistake” to rescue the market at this stage.

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