
China stock trading halted early after 7% plunge again - ausjke
http://www.marketwatch.com/story/china-stock-trading-halted-early-after-7-plunge-2016-01-06
======
rrggrr
A very successful Chinese entrepreneur once described Chinese economic policy
to me in terms I will diplomatically paraphrase as the inexperienced leading
the less experienced. His point was that China lacked the long history of
economic mistakes, and economic success necessary to successfully manage
complex economic systems at scale. The ups and down to come are necessary, but
they will certainly carry the rest of the world in a contagion with them - and
in that mistake I'm afraid the US is gaining experience as well.

~~~
ausjke
this busted cycle is a bit different from others, the government is the _sole_
one pushed the stock up before it crashed(using its controlled media to pump
up the stock with lots of promising articles over a few months), the stock
index had been staying at around 2200 for quite a few years, then shot to
~4600 last year and now it's swinging back.

to justify this crash, quite a lot fund managers are now in prison, who became
the scapegoat for the government--the real one initiated all this mess.

~~~
TeMPOraL
So in other words - in the US, bankers fuck up and the government has to pay
for it. In China, the government fucks up and bankers have to pay for it. A
strange world we live in.

I guess I'll be moving to Iceland.

~~~
nolok
Why Iceland ? There the government fucked up as much as the bankers, and then
used their power to make the bankers alone pay for it ...

Lots of people consider what happened there good because with our western view
bankers never pay for their mistake and they do in iceland, blissfully
ignoring the action from their government that triggered them and helped them
get there.

~~~
TeMPOraL
Probably because it seems that I was misinformed about Iceland, believing what
you say lots of people believe. Then again, it still looks like they're
better. They at least jailed _half_ of the responsible parties.

~~~
nolok
It is not my area of expertise and I wouldn't want to go much into it at the
risk of misinforming (although there is a detailed wikipedia page which could
be a decent starting point), but at the very least should be considered the
fact that when Icelandic banks started being too big and other countries
warned Iceland and refused to allow some acquisitions, their government went
out of their way to guarantee all deposits in Icelandic banks, even of non
Icelandic citizen. When things went wrong, they then went back of that
promise, paid deposits to their citizen and ignored the others.

At their height, the Icelandic banks possessions was worth eleven times the
GDP of Iceland, and were in part fueled by promise of their government to
other countries, promise that they went back on the moment things went south.

Imagine if another country did that to yours, say a Chinese bank buy a bank
where your country's citizens have deposits and then the chinese govenment
reneg their promise and let creditors in your country either lose their money
or be repaid by your own government, would you consider the chinese government
"the good guys who stood up to bankers" ?

> On 6 October, the Icelandic legislature instituted an emergency law which
> enabled the Financial Supervisory Authority to take control over financial
> institutions and made domestic deposits in the banks priority claims. In the
> following days, new banks were founded to take over the domestic operations
> of Kaupthing, Landsbanki and Glitnir. The old banks were put into
> receivership and liquidation, resulting in losses for their shareholders and
> foreign creditors. Outside Iceland, more than half a million depositors lost
> access to their accounts in foreign branches of Icelandic banks. This led to
> the 2008–2013 Icesave dispute, that ended with a ESA ruling that Iceland was
> not obliged to repay Dutch and British depositors minimum deposit
> guarantees.

> In 2001, banks were deregulated in Iceland. This set the stage for banks to
> upload debts when foreign companies were accumulated.

> his inflation was exacerbated by the practice of the Central Bank of Iceland
> issuing liquidity loans to banks on the basis of newly issued, uncovered
> bonds effectively, printing money on demand.

> In response to the rise in prices – 14% in the twelve months to September
> 2008, compared with a target of 2.5% – the Central Bank of Iceland held
> interest rates high (15.5%). Such high interest rates, compared with 5.5% in
> the United Kingdom or 4% in the eurozone for example, encouraged overseas
> investors to hold deposits in Icelandic krónur, leading to monetary
> inflation: the Icelandic money supply (M3) grew 56.5% in the twelve months
> to September 2008, compared with 5.0% GDP growth

Again, not saying the bankers weren't responsible. They were. But I don't like
the praise to how the icelandic government handled it because they were just
as responsible and then turned around and beat their accomplice while trying
to make themselves appear the good guys.

~~~
TeMPOraL
Thanks for the detailed explanation. I shall look into this story more before
voicing my opinion on Iceland's actions the next time.

~~~
nl
It's probably worth noting that the government which _went out of their way to
guarantee all deposits in Icelandic banks, even of non Icelandic citizen. When
things went wrong, they then went back of that promise, paid deposits to their
citizen and ignored the others_ all (?) resigned and many members up to and
including the Prime Minster[1] were charged and convicted of offenses relating
to their behavior before and during the crisis.

[1]
[https://en.wikipedia.org/wiki/Geir_Haarde](https://en.wikipedia.org/wiki/Geir_Haarde)

------
ryandrake
Can someone explain to me my why stock markets have "circuit breakers" to stop
trading when markets go DOWN by N% but not when they go up by N%? Isn't that
kind of playing favorites to folks playing one side of the market vs. the
other?

~~~
roymurdock
If markets drop enough the losses could trigger a negative feedback loop where
financial institutions automatically begin liquidating positions in order to
obtain the liquid assets to cover their debts in case investors see the losses
and decide to withdraw in a panic. This floods the market, driving prices down
further, and potentially triggering even more automatic liquidation, leading
into a death spiral.

Conversely, there is no mechanism that can push the market increasingly
higher, other than hyperinflation or a collapse in, say, the bond market which
might theoretically drive investors into equities. But if the bond market
collapses, the world has much bigger fish to fry and the stock market will
probably come down right afterwards.

~~~
muddyrivers
In theory, you are right. So the circuit breaker is uni-directional in NYSE
and NASDAQ. It is bi-directional in China, though.

The upside circuit break has very practical implications. China's current
stock market was started in 1990. The general public began to paying attention
to stock market around 2000. From the historical point of view, both the stock
market and the general public's understanding on it are still in early stage.
So the attitude on stock market is very speculative. Coincidentally, the
economy in China has been undergoing stunning growth during this period, which
generates a huge amount of wealth. This furthers the stock market's
speculative nature. As a result, the volatility could be very high. It was not
uncommon to see some stocks undergo several +/-20% changes during a week,
before the upside circuit breaker was established. Its primary purpose is to
curb the speculation.

~~~
muddyrivers
As a side note, a wrong picture is placed in the article. In China's stock
market, red indicates positive changes, while green indicates negative
changes. It is the opposite to those in USA.

------
samsnelling
I highly recommend listening to NPR's Planet Money podcast that talked about
the Chinese stock market a few months ago.

[http://www.npr.org/sections/money/2015/09/09/438948679/episo...](http://www.npr.org/sections/money/2015/09/09/438948679/episode-649-china-
china-china)

~~~
ChuckMcM
And various Economist articles:

[http://www.economist.com/topics/chinese-
economy](http://www.economist.com/topics/chinese-economy)

------
ljlolel
Shoddy Chinese-Made Stock Market Collapses

[http://www.theonion.com/article/shoddy-chinese-made-stock-
ma...](http://www.theonion.com/article/shoddy-chinese-made-stock-market-
collapses-51163)

~~~
charlesism
And on the "Not the onion" side we have Quartz:

[http://qz.com/588386/chinas-new-stock-market-circuit-
breaker...](http://qz.com/588386/chinas-new-stock-market-circuit-breaker-is-
broken-and-it-is-panicking-investors/)

TL;DR: If only China hadn't halted trading, everything would be fine!

------
mladenkovacevic
It'll be interesting to see how North American markets will respond tomorrow.

Is there any indication that these wild swings are caused on purpose? I mean
they did occur after the Chinese devalued their currency again, so did they
not know that a downturn in the market was going to follow?

Are there any currencies maintaining their relationship with the US dollar? It
seems like the USD is singularly levitating above all other currencies.

~~~
netheril96
> Is there any indication that these wild swings are caused on purpose? I mean
> they did occur after the Chinese devalued their currency again, so did they
> not know that a downturn in the market was going to follow?

I am a Chinese and I heard two theories from my friends:

1\. Today's swing is a response to North Korea's hydrogen bomb news. 2\. The
downturn in the market is deliberate so that China's pension fund, currently
in massive deficit, can reap the gains by entering the market at its low
point.

~~~
wodenokoto
It also coincides with the end of a 6 month ban on selling shares from top
holders as well as with growing concerns that China, despite the official
numbers, is actually in a recession.

There is no lack of theories, but look at the insane market valuation growth
last year and maybe calling it the burst of a speculative bubble is the
simplest explanation.

~~~
netheril96
> calling it the burst of a speculative bubble is the simplest explanation.

I do agree with that, but many people insist that it is not the truth. All
kinds of theories have been invented since the collapse in July, all kinds of
people have been jailed for "manipulating the market", and they still refuse
the believe that the market is, just the market.

------
jzd
What does this mean for Bitcoin?

~~~
mirimir
It's increasing Bitcoin popularity in China, I suspect. And 81% of Bitcoin
exchange volume is already in CNY (average for last 30 days). I'm guessing
that the price will stay in the 420-450 USD range.

~~~
oska
You can't rely on the self-reported volume figures from Chinese bitcoin
exchanges. They are zero fee exchanges so it's very easy to inflate volume and
there are many indications that that is exactly what they do.

~~~
mirimir
OK, thanks. I have heard that before, now that you say so. Are there any
credible estimates of how inflated they are? Is there any way to check against
the blockchain?

Also, what's the incentive for inflating volume? Promotion?

------
mianos
This new rule is interesting: "The China Securities Regulatory Commission
capped the size of stakes that major investors are allowed to sell at 1 per
cent of a company's shares for three months effective Jan. 9"

Having implemented the A/B market for foreign ownership I'd have to guess this
rule will be done post trade with a naughty stick.

------
ismail
Why do i get this feeling china seems to be constantly trying to stick a
finger to block a leaking bucket and will soon run out of fingers?

------
jonathanpeterwu
Stopping downward spirals prematurel is a short term solution that will lead
to larger downturns in the future. Referencing anti fragility

------
keyle
Hacker news worthy?

~~~
brandon272
From the HN Guidelines:

> On-Topic: Anything that good hackers would find interesting. That includes
> more than hacking and startups. If you had to reduce it to a sentence, the
> answer might be: anything that gratifies one's intellectual curiosity.

Seems worthy, in my opinion.

