
China stocks drop over 8% - pingec
http://www.reuters.com/article/2015/07/27/us-markets-china-stocks-idUSKCN0Q10KE20150727
======
netcan
The price drop is a price drop. I don't think we can add too much useful
commentary to it.

The politics of it, well that _is_ interesting. The Chinese government is
acting a little panicky. Suspending trading, banning "malicious" selling,
state supported margin loans.

It makes me think that _they_ may have taken on the pundits' belief that the
chinese public will support the CPC regime only as long as rapid economic
growth is part of the package, that any economic troubles will result in
regime change.

IMO, that's the storyline to watch.

~~~
nindalf
Well put. However, you have to question the assumption that a stock market
crash affects the economy in a significant way. For example, it would make
sense if a lot of savings were lost, because that would affect consumption.
However, that's not the case. As the Economist pointed out - "Less than 15% of
household financial assets are invested in the stockmarket: which is why
soaring shares did little to boost consumption and crashing prices will do
little to hurt it." [1]

The fundamentals of the Chinese economy remain strong and the the Communist
Party's panic-stricken attitude isn't helping matters much.

[http://www.economist.com/blogs/freeexchange/2015/07/chinas-s...](http://www.economist.com/blogs/freeexchange/2015/07/chinas-
stockmarket-crash)

~~~
netcan
Possibly… I don't really understand how that stock market-economy relationship
works.

It's also entirely possible that the CPC could survive a full blown high
street recession. I don't really know. But this is a game of he thinks she
thinks that I think. The CPC seems to be reacting (so far, not that severely)
in ways that suggest they are worried. I suspect they are worried about
political consequences, not just economic ones.

Nothing has happened yet. I'm just speculating. But, I'll prick my ears if
scapegoats start emerging, arrests happen, someone is accused of intentionally
sabotaging the chinese economy…

~~~
tim333
The governments actions seem a little worryingly like they don't know what
they are doing. They shouldn't be trying to prop the market up but should
worry about maintaining spending in the real economy so people don't lose
their jobs and the like.

------
randomname2
Today's crash was their biggest one-day drop since February 2007 and the
second biggest crash in history.

This despite threats of arrests to "malicious sellers", "an $800B worth of
public and private money enlisted to prop up its wobbly stock markets" (10% of
its GDP), and government intervention on at least 40 different occasions in
the past month:

[http://uk.mobile.reuters.com/article/idUKKCN0PX0AU20150723?i...](http://uk.mobile.reuters.com/article/idUKKCN0PX0AU20150723?irpc=932)

~~~
slacka
Yes, but if you invested a year ago in the Shanghai Stock Exchange Composite
Index, you'd still have almost doubled your money. 3 months ago, and you'd
still be even after today's drop. It's a bad single day drop, but the actual
levels are not so bad.

~~~
peteretep
If you had invested all of your money then, yes. If - as seems to be the case
in many cases for this particular bubble - you'd been so cheered by your gains
that you took out a loan to continue playing, you'd be fucked.

~~~
bhouston
That is one of the main issues with such a bubble, the hype when it is going
up attract a lot of suckers who are quick to be separated from their money.

The VC market for tech companies basically died after the NASDAQ crash in 2000
for a good 3 to 6 years (I do not know precise times as it was a little before
my time.) I think that is because a lot of VC's lost liquidity and couldn't
make further on investments in their existing porfolio, there was very little
M&A action, and there was no real IPO market. Thus these bubbles, even if they
do not wipe everyone out can have serious long term effects for segments of
the economy.

This is likely more serious than the NASDAQ because it is the general market
rather than a tech specialty market -- but take all this with a grain of salt
as I knowing nothing really about specifically China's situation, just making
analogies with what happened in North America.

------
partiallypro
The problem is that the valuation in the market is insanity, China's growth is
slowing, and there are margin accounts that aren't on the books because they
are done through backdoor lending channels. Couple all of that with the
government's idiotic actions that have forced lockins for big institutional
buyers and you have a disaster on your hands. Why would a large institution
buy the market if you have told them they have to hold it for 6 months?
Idiocy.

Not to mention there are stocks listed on the exchange that literally do
nothing. Very much like the Dot Com bubble. I heard a story about a public
company trading in China's A shares that is developing an "invisibility
cloak."

I suspect the market will rally back hard, maybe even tomorrow, but over the
next 6 months? I wouldn't want to touch it.

~~~
hodwik
The Chinese economy is huge, and as a nation it is undervalued, but there is
no way for these stocks to actually provide coverage to that portion of the
Chinese economy.

Too much of that money is off the books, too many of its employees are
unreported. Most estimates put it between 10 and 30% of GDP. I think even that
is too low, count me with Shaun Rein of China Market Research Group --

"The official economic growth numbers are not too high at all. They’re too
low.

Why? Because China’s underground economy is far bigger than the 10% to 20% of
the total economy that most economists estimate when they do their
calculations. Politically the government can’t admit that. A decade ago the
U.S. Treasury estimated that 50% of Russia’s economy stayed underground,
evading onerous taxes. China’s underground economy as a portion of the overall
economy is at least as large as Russia’s."

~~~
partiallypro
Even if China's GDP is understated, its growth is slowing; many economist
agree it is slowing more than the Chinese government is letting us see...The
Chinese central banking authority is essentially doing quantitative easing, or
is on the precipice of it...that is not signs of a healthy economy my friend.
China currently greatly resembles Japan in the early 90s imo.

Besides, in the end, even assuming you are completely correct, their stock
market it completely decoupled from their economic situation. Even if their
economy was growing 10%+, the valuation (F P/E & P/E) is extremely
exaggerated.

~~~
Mikeb85
Of course their growth is slowing. Law of big numbers and all that. Even their
'slowing growth' has their economy growing at 7% YoY.

------
tomp
This. Was. Not. Supposed. To. Happen. (Quoting ZeroHedge.)

Worth noting: in the past few weeks, Chinese government tried very hard to
stop the fall and prevent a crash - preventing selling by large stock holders,
criminalizing short-selling, ordering stock buybacks, outright buying stocks,
relaxing margin requirements, stopping IPOs, ...

Obviously, that's not a viable long term solution.

~~~
techhackblob
Is that interventionist policy any different to the Fed and ECB propping up of
the US and European stock markets since the depths of the crash with QE? If
not then when is the long term viability of that solution going to be called
into play?

~~~
surfmike
Yes.

The Fed and ECB's goal is not to prop up stock market valuations, but to help
the economy by encouraging spending and investment through moderate inflation.
The banks are tightly bound by inflation targets. Arguably, the ECB has done
too little QE since nominal GDP has barely (or hasn't) recovered in most of
Europe since 2007, and inflation has been way under target since the crisis.

It seems like China's reaction is more panic-driven, and doesn't have a
framework such as inflation targeting to constrain it. In addition, this
intervention is just to prop up stock asset prices; encouraging spending and
growth in the whole economy is not the primary goal.

~~~
irln
With respect to "China's reaction is more panic-driven", check out the
following three charts of US Fed policy which I would argue were "panic-
driven" based upon magnitude of the intervention when compared historically.

It remains to be seen to what affect recent US Fed policy will do long term,
however, I would argue that it was definitely a panic driven reaction.

I provide this not in support of China's policy but for context.

Excess Reserves
[https://research.stlouisfed.org/fred2/series/EXCSRESNS](https://research.stlouisfed.org/fred2/series/EXCSRESNS)

Overnight Rate
[https://research.stlouisfed.org/fred2/series/FEDFUNDS/](https://research.stlouisfed.org/fred2/series/FEDFUNDS/)

Federal Reserve Balance Sheet
[https://research.stlouisfed.org/fred2/series/WALCL](https://research.stlouisfed.org/fred2/series/WALCL)

~~~
yokohama11
I think the better statement would be that it was a panic, but one with very
different and more practical goals.

The US government was primarily trying to keep some big companies and banks
that were caught in a liquidity crunch from going bankrupt, because them all
going under would likely be a spiraling problem. The crisis solution was also
rather simple in aggregate...loan them a bunch of money temporarily until they
could free up the assets to repay it.

China is currently trying to prop up a stock market that is STILL (even with
today's decline), up 50% in a year for no reason. And most trading in the
market is done by very jittery small investors (who are also overleveraged and
now desperate to get out) rather than big firms and funds. Said small
investors are unlikely to be reassured by anything the Chinese government can
possibly do. I don't see great chances for the government to be able to stop
this from returning to a more realistic valuation.

------
vasilipupkin
The biggest issue that regulators all over the world get confused about is,
they think somebody has to sell for the market to go down, so if you ban
selling, market will not go down as much. But in fact, if you ban selling,
market becomes less liquid, and so, buyers have to demand compensation for
incurring additional liquidity risk. therefore, they will lower their bids and
market will drop even more !

------
smegel
> reviving the specter of a full-blown market crash

Or a full-blown market correction even.

~~~
simonh
Indeed. Is it really a crash if share prices fall to fair, economically
justifiable valuation levels?

~~~
tomp
Looking back, "share prices fell to a fair level" is a perfect description for
every crash in history.

~~~
goodcanadian
From what I can see, share prices often overshoot "fair" levels and become too
cheap in a crash. Not that I'm complaining, necessarily; it can create an
excellent buying opportunity.

~~~
joering2
Its also called "catching falling knifes"

~~~
waylandsmithers
Assigning a catch phrase to a certain activity doesn't make it any more or
less of a good idea, but if you're buying "because it went down" you are
probably just gambling.

~~~
seanmcdirmid
Technically, if you are buying for short term gain without insider
information, you are probably gambling (unless you see something others have
missed, but does that count as outside information?). Otherwise, you want
market growth over the long term, or are just hedging.

------
randomname2
Excellent reporting on the total Chinese loss of control by the SCMP's George
Chen:

    
    
        BREAKING: Shareholders of 9 listed firms incl. Southwest Sec (600369) under CSRC investigation for illegally selling stocks -company filings
    
        — George Chen (@george_chen) July 27, 2015
    
        China Securities Regulatory Commission urges everyone to report illegal trade and you can report malicious sellers at http://t.co/xNGiLniBLq
    
        — George Chen (@george_chen) July 27, 2015
    
        China Securities Regulatory Commission says to continue to monitor market activities and will forward case to police for arrest if necessary
    
        — George Chen (@george_chen) July 27, 2015
    
        CSRC spokesman: Can't rule out possibilities some investors are still "selling stocks maliciously"; regulator will continue to investigate
    
        — George Chen (@george_chen) July 27, 2015
    
        CSRC spokesman: we welcome all parties in society to provide clues about, report those who conduct malicious selloff. Hotline +8610 88060082
    
        — George Chen (@george_chen) July 27, 2015
    
        CSRC spokesman: China's state agency for margin finance has not "quit market" and will continue to increase stock holdings "at proper time"
    
        — George Chen (@george_chen) July 27, 2015
    
        Remember Mao's Cultural Revolution? Now there is Cultural Revolution in Chinese stock market: welcome everyone to report each other! Insane!
    
        — George Chen (@george_chen) July 27, 2015
    
        My view: China stock market crisis now proved to be more than market crisis but crisis in governance - show how incompetent, insecure gov is
    
        — George Chen (@george_chen) July 27, 2015

------
akandiah
They would fall further if it weren't for the 10% 'fall-limit' that's imposed
by the government.

------
kfk
China lacks innovation and innovation culture, for now. If they don't get that
solved, they will not grow as much as they did during the last 40 years. They
need to find ways to climb up the value added chain, innovation and know how
would be the best way, but let's see how they play this out. They have a huge
market though, so there is that.

~~~
rm_-rf_slash
I think the problem may be deeper. China certainly is innovative and
technically adept, but they have a serious sex problem (one-child policy and
demographics pun partially intended).

China isn't cool. Even the Chinese elite drive Western cars, watch Western
entertainment, wear Western brands, and so on. Given that China's labor costs
are nearly equal to American labor, if additive manufacturing strips away
their manufacturing ecosystem advantage, there will be little reason to buy
from China what can be cheaply made at home or elsewhere. China can make
anything that anyone else in the world makes, but "Made in China" is the last
thing people expect to see on a luxury product, unless it's accompanied by
"Designed in California."

~~~
gbog
What do you mean by "even the elite drives western cars..." Obviously only the
elite can buy these. And most Chinese people eat Chinese food, visit Chinese
touristic places, read Chinese books, etc. There's only the western movies
which could be said to really have no local equivalent.

~~~
rm_-rf_slash
It's not that China lacks brands, but that it lacks globally aspirational
brands. Here's the problem in reverse: do non-Chinese aspire to buy Chinese-
designed goods? It has even become increasingly unfashionable in China to wear
knock-offs, making the demand for foreign luxury goods even greater. Of course
only the elite can afford these items, but when the poor and middle class of
today become the elites of tomorrow, what will be any different for them?

------
djb_hackernews
This isn't that big of a deal. The Chinese stock market is tiny compared to
its economy[0], something us westerners have a hard time understanding. The
Chinese government is really just experimenting with all of their
interventions, this really has no bearing on the health of the Chinese economy
or world economy and is really only bad news for people that heavily invested
in the last few months.

[0]
[http://static.businessinsider.com/image/55800e76ecad047824bc...](http://static.businessinsider.com/image/55800e76ecad047824bc01a8/image.jpg)

------
nabla9
Crucial detail left out:

Even after these drops SHSZ300 and .SSEC are still valued almost 2X from what
they were year ago. This is crazy within a year bubble that is bursting. There
will be several 8% drops until markets have retreated just one year.

~~~
korisnik
It's not left out, the article clearly states that the value doubled since
last year.

------
eddd
Chinese stocks were overvalued for a while now, at least I heard that many
times before. It seems that no one can beat beat the willing of free market -
even Chinese government.

------
phatbyte
How bad can this spread to the rest of the world ? I remember 2008 with the US
it affected Europe bad, I'd imagine China causing the same effect if not
worse..

~~~
seanmcdirmid
The China market is pretty limited in reach; not many foreigners and not even
many institutional investors; it is rife with insider trading and is pretty
volatile. It is more like Macau than wall street. Still, dysfunctionalities in
the Chinese economy that they were trying to hide with a stock market boom
will now come in front and center, which will have some effect on the global
economy. Especially in raw materials and energy, but even in some trade.

I'm quite worried about it personally.

~~~
Bill_Dimm
_The China market is pretty limited in reach; not many foreigners and not even
many institutional investors_

How much money do Chinese investors have invested outside of China? If they
bought Chinese shares on margin, they may end up selling assets globally to
cover.

~~~
seanmcdirmid
It is really hard to convert RMB, so that is probably not a big problem. The
RMB's non-convertibility helps a bit in that regard.

------
dharma1
I guess the tens of millions of retail investors who entered the market in the
past year or so will burn their fingers.

Lenders will probably take a hit since a lot of people were playing with
borrowed money.

The credibility of the government will take a hit - many have already been
moving money out of the country at a record rate because they don't trust the
government, and retail investors who are now losing their savings will start
questioning the government.

------
mempko
The Communist Chinese government, experiencing the wonders of markets.

------
the-dude
What I find more worrying is mining and oil companies doing big layoffs and
postponing investments at this very moment ( partly due to overproduction on
anticipation on Chinese demand ).

I wonder what this will mean for the world economy. Are we limping from one
recession into the next?

~~~
randomname2
The Philips CEO just said China is really slowing down, as is Brazil. Similar
comments from Caterpillar last week.

~~~
jbverschoor
Apple goes full on in china

------
jaawn
The bubble is clearly visible here:
[http://www.bloomberg.com/quote/SHSZ300:IND](http://www.bloomberg.com/quote/SHSZ300:IND)
(change time frame to 5Y)

Based on my completely non-expert analysis, it looks like the index is likely
to drop down to around 2,800-3,000 or lower...unless there is some realistic
explanation for an index which was on a slight downward, long-term trend to
suddenly jump up by 130% in ~9 months.

------
danmaz74
So, in one day, the stock market has lost everything that it had recovered
during the last 3 weeks, after the government intervention to stop the fall
that started in June. Looks like those interventions ran out of steam.

------
darkhorn
Why?

~~~
abluecloud
Because their stocks have been over valued for a while now. This is basically
the market adjusting to what it should have been.

Check here:
[http://www.bloomberg.com/quote/SHCOMP:IND](http://www.bloomberg.com/quote/SHCOMP:IND)
with 1 year comparison.

~~~
visarga
Chinese have a cultural bias to save money. This was a problem in the past
because vast quantities of cash were stuck in the "mattress" sort of speak.
They encouraged people to invest their money in stocks, and that led to the
bubble that is crushing now.

~~~
crdoconnor
It's not cultural. It was triggered by the smashing of the iron rice bowl.

~~~
crimsonalucard
No, I'm a chinese person born in the US, I can confirm it's cultural. My
father is from Asia and he sometimes looks down on "stupid/uneducated"
Westerners for not saving their money. The irony is that if the the typical
chinese person was "educated" they'd know that a functioning economy needs
people to spend.

~~~
jazzyk
>a functioning economy needs people to spend

Agreed, as long as people don't spend money they don't have :-)

You could be saving too much (example: China with 30-50% income saved) or not
saving enough (example: the US, with saving levels around 5%, was actually
negative before the Great Recession)

Neither option is particularly good for the economy, but if I had to choose,
I'd rather over-save than over-spend.

------
crimsonalucard
People become addicted to unsustainable economic growth.

------
whitenoice
Time to put an alert on my alibaba stock!

------
curiousjorge
It's in Chinese governments interest to see that the mass population's wealth
are not wiped out, especially when they have encouraged people to put money in
the stock market, even on margins.

Already before the rally of the SSE, China was not in a healthy state with
large amount of debt.

Now they are printing more money, taking on more debts to prop up the stock
market and they've shown everyone that they are powerless.

In the meantime,I speculate that Chinese government will go all out to prevent
the SSE from sliding any further. It's government continuity is indirectly
threatened. And this is why I can't speculate on China anymore, it's _exactly_
like a casino where you are playing against the house, and they won't let you
leave with any large profits and accuse you of cheating.

------
haosdent
Chinese government could save this. Never mind.

------
ommunist
I'd rather say "China stocks adjusted over 8%". It's perceived size is
"adjusted" to real value, but is not still adjusted fully. By the way - buy.

~~~
ommunist
To those downvoting me. Are you from another planet? On this one China is just
about to incorporate Russia in about 10 years. Buy railway-connected stock, I
am serious.

~~~
reddytowns
If the herd is sure enough to wager their own money on their opinion, why do
you think they wouldn't downvote alternative ideas as well?

~~~
ommunist
Good point. I must think more often.

