Brocker.Org: China just had a ‘Black Monday’


Yuxi (L), introduces analysis software to investors at a “street
stock salon” in central Shanghai, China, September 5,


Stocks plummeted across China on Monday, with 500 stocks hitting
their 10% daily limit and 1,200 falling 7%, according to the
South China Morning Post. They’re calling it

Analysts are blaming the panic on news out of a government
on the financial system held over the weekend. At
the National Financial Work Conference, chaired by President Xi
Jinping, officials decided to create a special committee to
oversee the regulation and deleveraging of China’s financial
system over the next five years.

The regulator will continue to crack down on violations of
securities laws and regulations, including insider trading and
market manipulation,” said Jiang Yang, vice chairman of the China
Securities Regulatory Commission during an exclusive interview
with state media outlet Xinhua.

The message out of that meeting was clear — China’s
financial system is not turning to the bad old days (i.e. last

What this means is that things are not going back to
normal. There’s a new normal in China now.

After allowing big, international dealmaking financial
firms to grow at a breathtaking clip, the government started
cracking down on them months ago. The aim was twofold — keep
money in the country, and stop these companies from taking on too
much risky debt.

Chairman of Anbang Insurance Group Wu Xiaohui attends the China Development Forum in Beijing, China March 18, 2017.  REUTERS/Thomas Peter
of Anbang Insurance Group Wu Xiaohui attends the China
Development Forum in Beijing


Firms like Anbang Insurance, which bought the Waldorf Astoria,
and HNA, which has also been snapping up US assets, started to
uncomfortable run-ins with the government
, despite their
close connections to the Communist Party. The Chairman of Anbang,
for example, was taken into custody even though he’s married to
late Chinese leader Deng Xiaoping’s granddaughter.

In its story about the conference, Xinhua — which is widely seen
as the voice of the Chinese government — took a moment to give
these firms a shoutout (n0t a good thing if they want to go back
to working the way they used to).

Chinese insurers grabbed headlines by using leveraged
money to buy shares in listed companies, triggering sharp
volatility in the market late last year,” it said.

To be fair, though, it looks like no one is safe — not even one
of the richest men in China, billionaire Wang Jianlin
Dalian Wanda Group.
According to Bloomberg
 the government found “violations”
in six of his overseas investments, including one for
US-based Carmike Cinemas. That means the government will direct
banks not to fund his projects.

This instability in the financial sector is taking
place under a strange backdrop as China reported solid Q2
2017 economic growth numbers. Real GDP growth held steady from
the previous quarter at 6.9%. June industrial production grew at
7.6%, up from 6.5% in May.

“The effects of previous liquidity tightening and the still
ongoing financial regulatory shake-up are evident in money and
credit data, but have not yet reached the real economy,” Societe
Generale analyst Wei Yao explained in a note to clients Monday

In fact, the real economy is looking like more of the same
we’ve seen from China for years. In Q2 there was significant
growth in overheated or overlevered sectors — like real estate
and steel — that the government has talked a lot about reforming
since 2014.

For obvious reasons this is a balance that Chinese officials
would like to continue striking. In her note, Yao points out
that, in a way, China’s financial firms have something to be
grateful for. If the government wanted, it could try to turn this
five-year deleveraging project around much faster.

From Societe Generale (emphasis ours):

Over the weekend, the high-profile National Financial Work
Conference chaired by President Xi Jinping elevated the goal of
safeguarding financial stability and strengthening the regulatory
framework to a policy priority of strategic importance. It is
decided that a special commission will be set up directly under
the State Council to oversee financial stability and guide the
financial sector to better serve the real economy. To us,
these announcements signal that lowering financial leverage and
stabilizing corporate debt levels is a medium-term project that
Chinese policymakers are keen to see through, but there is no
rush to get it done this year. 

See, guys? Xi has your back.