China’s (Stock) Plunge Protection Team Rides Again

PlungeProtectionGuy China's (Stock) Plunge Protection Team Rides Again
When the guy on the left is on the loose in stock markets, you need the guy on the right. Right?

Well this is rich: The People’s Republic of China has been fighting the United States and the European Union at the World Trade Organization over still being designated as a “non-market economy,” implying that state intervention matters a lot more in the PRC relative to allowing market forces to work things out. At the same time, Chinese officialdom appears to be doing all sorts of actions that contradict laissez-faire economic governance necessary to improve its designation.

Just as the recent US-led stock crash has laid low stock markets around the world, Chinese powers-that-be have mounted an aggressive defense of PRC-listed stocks. Demonstrating rather “non-market economy” phenomena, it’s been “encouraging” [read: do it or suffer all sorts of consequences] large shareholders to buoy their stock holdings:

An affiliate of China’s securities regulator on Monday encouraged major shareholders of domestically-listed firms to increase their holdings, after Chinese stocks were mauled in a global sell-off last week.

The call represents the clearest signal yet from the Chinese government to lend support to a market rocked by recent global volatility, China’s deleveraging campaign and fears of margin calls. It also stirs memories of government intervention during China’s 2015 stock market crash, when companies were also urged to buy shares and state-backed funds were pumped into the market.

China Securities Investor Services Center, directly managed by the China Securities Regulatory Commission (CSRC), said in an emailed statement that share purchases by major shareholders could help stabilize the market and shows big shareholders stick with retail investors “through thick and thin”.

The ploy is designed to boost confidence among mom-and-pop investors riding through a fairly turbulent patch at the moment:

Such a practice would “bring confidence to small investors, and have a positive impact” on the market, the center said, encouraging major shareholders and senior executives of listed companies to increase shares if they have not yet done so. Chinese stocks fell nearly 10 percent last week, the worst weekly performance in two years as investors dumped shares across the board.

China’s leadership is very keen on appearances, so it’s no surprise that the last time their plunge protection was at it was during last year’s run-up to the Communist Party Congress.

These guys run a “non-market economy.” Nuff said.

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