Sunday, October 21, 2018

China says it will steer its financial markets back to health


Still doesn't sound like the fiscal intervention they really need.

PBoC guy talking more monetary policy, securities regulator talking reducing some red tape there, bank regulator pointing to fundamentals, high government official saying their market has become cheap.

Weak sauce..

So far Xi Jinping’s government appears to be taking a middle road, voicing support for the market while stopping short of large-scale intervention. 
People’s Bank of China Governor Yi Gang said in a statement on the central bank’s website that it is studying measures to ease companies’ financing difficulties and will use policy tools to support banks’ credit expansion. 
Liu Shiyu, head of the China Securities Regulatory Commission, said his agency encouraged local government-backed funds to help ease pressures created by share-pledge risks. 
Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said in an interview posted on the regulator’s website that recent “abnormal fluctuations” in markets don’t reflect the country’s economic fundamentals and “stable financial system.” 
Liu He, China’s vice premier, hammered home the message in an interview with the Xinhua News Agency. He urged officials to step up efforts to promote “healthy” stock-market development while noting that equity valuations had dropped to historically cheap levels.




5 comments:

Andrew Anderson said...

Sounds like they are repeating the US's mistakes, i.e. supply side economics.

They'll get the supply but what about the demand?

Otoh, I could see China de-privileging its banks and handing out fiat equally to all citizens - something the West should do too but can't figure out how to justify morally, so far, because it is loath to admit the current system is unjust.

Matt Franko said...

“Sounds like they are repeating the US's mistakes, i.e. supply side economics”

Yes for now... US eventually made the adjustment via fiscal.... probably China will too eventually...

sths said...

Hi Matt,

It seems you are saying that both the US crash of 08 and the current Chinese stock market crash are due to their respective central banks adding too many reserves to the banking system.

Based on https://www.bochk.com/dam/investment/bocecon/SY2015005(en).pdf
it seems the reason the US FED did it was because they thought adding reserves to the system would help banks 'lend out more' and thereby kick start the economy. I'm guessing the exact mechanism on how they did this, is what you meant by " (ie they reify the regulatory accounting abstraction)". Hence why the required reserve vs excess reserve is 1:18. (is this what you mean when you say the US banks are massively over capitalized?)
The recent Chinese crash is due to the fact that they've been adding reserves to
their banking system to sterilize foreign currency inflows, and by bumping up the RRR they reduce the ability of banks to lend against risk assets hence causing a lowering of asset prices.

Matt Franko said...

St,

Yes that is about it...

They directly do it based on Monetarist Theory they have been taught .... but the cognitive deficiency of reification is imo a broader problem .... the problem here is just manifested in Monetarists specifically...

Matt Franko said...

“the US banks are massively over capitalized?)”

They are overcapitalized wrt the Ratio against risk assets only... nonrisk assets dominate the dual ratio regulatory equation when CB policy is to create trillions of reserves...

So if Fed proceeds to reduce reserves by trillions as planned this will reverse and risk asset ratio will become dominant (again) as has been somewhat “normal”...