Wednesday, July 8, 2015

Panic in China

In just three weeks, stocks listed on mainland China’s most prominent exchange have fallen by more than 30% from their seven-year highs. The even more speculative ChiNext Index has lost 42% of its value over the 21 days.

Government regulators have now banned, for six months,Chinese executives from selling stock in their own companies. This is only one of a number moves made by panicked officials.

The collapse shouldn't come as a surprise. Although China in many ways has moved to free markets after the days of Mao, it has also adopted a central bank interest rate manipulation formula and like a young kid in a fast new car, central banking officials took the economy on quite a spin.

In August of last year, I wrote in the EPJ Daily Alert:
Not surprising from my perspective, data is out suggesting that
China’s services sector stagnated for the first time in nine years
last month.
HSBC’s purchasing managers’ index for China’s services sector fell to
a reading of 50 for July, the lowest in records dating back to
November 2005. So much for just slowed growth in China. China is at
the start of a great unwind of a money printing distorted economy. It
could possibly result in the greatest financial and economic crash in
This is only one of many warnings I have made about the Chinese stock markets and economy, in the ALERT.

The  government may be able to temporarily prop up the current collapse, but it will only make things worse down the road. Much of the Chinese economy is a kind-of Kyenes/Krugman phony economy, including tens of millions of vacant apartments that I suspect are uninhabitable in the first place.


1 comment:

  1. The world's going to hell in a handbasket. The man on the street thinks an ounce of gold isn't worth $20 (see Mark Dice). Buy low.