White CollarChina markets: Bench the national teams please
The People’s Bank of China (PBOC) has borrowed a leaf from the playbook of Chinese stock market regulators to manipulate the currency, which may stabilise the market in the short run but will delay China’s adoption of international norms.
When the Shanghai and Shenzhen stock markets began to slump in early July, Beijing decided it needed to do something to stop the market from reeling out of control. Mainland Chinese media reports said Beijing provided up to 3 trillion yuan to government agency China Securities Finance Corp and certain state-owned brokerage houses to buy stocks and support the market. The shadowy group of rescuers came to be known as the “National Team”, which is understood to have been tasked to prop up shares since last summer’s sell-off.
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The National Team has dutifully played its assigned role in the past six months. In early July the China Securities Regulatory Commission announced the China Securities Finance Corporation provided 260 billion yuan in credit to 21 brokerages to help them buy stocks via proprietary trading. Brokers have since attributed any sharp rebound in the market to the National Team.
The institutionalised market intervention has had mixed results. While some believe the National Team has stabilised the stock market, others say that with its manipulation, it has prevented market forces to find the right price for stocks. And, whenever the National Team takes a break, the markets tend to fall sharply.
Now the banking version of the National Team is being played out in Hong Kong. After offshore yuan dropped 1.72 per cent in the first week of 2016, the PBOC decided it needed to do something to stop the yuan from falling too rapidly. But unlike the stocks National Team that is mainly operating inside China, the PBOC’s currency National Team has taken centre stage in Hong Kong.
