Weekend Economists Salute Ruin July 3-5, 2015

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19. China's Boom Has World Bank Worried By William Pesek

WELL, THEY CAN STOP WORRYING, CHINA'S STOCK MARKET CRASHED TODAY...

The World Bank has a timely warning for Chinese President Xi Jinping: Don't let all that money go to your head.

The global lender didn't refer directly to Shanghai's stock boom or the Asian Infrastructure Investment Bank (Beijing's attempt to develop a World Bank of its own). Nor did it have to. By urging Beijing to clamp down on wasteful investment, unsustainable debt, and a shadow banking industry run amok, it was delivering a clear enough warning that President Xi should stop fanning China's giant asset bubble. The World Bank was also implying China should get its own economic house in order before trying to change the global economy.

"China has reached a critical phase of its economic and social development path," the lender said in a new report released Wednesday. The economy "will need to be transformed to increase the efficiency of new investments and widen access to finance, enabling China to sustain solid growth and rebalance its economy."

The World Bank's admonishment was amplified by a fascinating milestone the Chinese economy reached this week -- one that presents Xi's government with a complicated image problem. China's 90 mainland stock traders now outnumber its 87.8 million Communist Party members. This changing of the guard, if you will, is taking place the same week the party celebrated its 94th anniversary -- hardly what Mao Zedong had in mind when he led the Communists to power in 1949.

In truth, China's fast-growing legions of stock traders are betting on a type of financial Communism. Everyone knows the Chinese economy is slowing and deflation is approaching, but markets have generally stayed aloft amid perceptions Xi will use the full power of the state to protect investments. Along with weekend interest-rate cuts, authorities have just made it easier to take on even more leverage. Brokerages now have leeway to boost lending by about $300 billion...

http://www.bloombergview.com/articles/2015-07-02/china-s-boom-has-world-bank-worried

China hunts for 'manipulators' as stocks tumble

http://www.reuters.com/article/2015/07/03/us-china-markets-idUSKCN0PD03020150703?feedType=RSS&feedName=businessNews

Chinese stocks tumbled again on Friday, taking the week's losses to more than 10 percent, as the securities regulator said it was investigating suspected market manipulation and announced a slew of measures aimed at heading off a full-blown crash.

After a slump of nearly 30 percent in Chinese stocks since mid-June, the China Securities Regulatory Commission (CSRC) has set up a team to look at "clues of illegal manipulation across markets".

After market close, a CSRC spokesman said China would cut initial public offerings and capital raisings and support long-term investors entering the market to help stabilize prices.

It also said China's official margin lender for brokerages, which makes loans available for stock market investment, would boost its capital base to 100 billion yuan ($16 billion) from 24 billion yuan to expand its business.

A flurry of policy moves over the past week, including an interest rate cut and a relaxation of margin lending rules, had failed to arrest the sell-off.

The People's Bank of China (PBOC) also rolled over 250 billion yuan of medium-term loans to banks late on Friday to ensure adequate liquidity in the system.

"The government must rescue the market, not with empty words, but with real silver and gold," said Fu Xuejun, strategist at Huarong Securities Co, before the CSRC and PBOC announcements, adding that a market crash would hurt banks, consumption, companies and even trigger social instability. "It's a disaster. If it's not, what is it?"

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