China Fires Stock Regulator, Scrambles To Regain Narrative As Economy, Stock Market Implode

Saturday, February 20, 2016
By Paul Martin

by Tyler Durden

China is having an exceptionally difficult time managing the narrative.

What began in late 2014 as whispers about a so-called “hard landing,” escalated to a cacophony of jeers last month, when investors (rightly or wrongly) blamed volatility in China for one of the worst Januarys in market history.

Almost nothing has gone right for Beijing since last June when the house of cards that is the country’s equity market casino collapsed on itself following a dramatic unwind in the backdoor margin conduits that helped to channel an additional CNY1 trillion into an already frothy stock market.

An especially absurd state-sponsored effort to prop up stocks failed miserably and then, on August 11, China attempted to transition to a new FX regime. The yuan devaluation sent shockwaves through global markets and ultimately triggered a very “black” Monday on August 24 when the Dow fell 1,000 points at the open in a harrowing bout of flash-crashing madness.

Since then, China has scrambled to restore confidence by, among other things, purchasing trillions of yuan in equities, arresting alleged “manipulators”, and penning dozens of “Op-Eds” that find their way into the Politburo’s various state-controlled media outlets.

Put simply: nothing has worked.

The yuan deval hasn’t rescued the economy (as is clearly evident from the most recent trade data) and if anything, the effort to effect a “controlled” devaluation is contributing to rampant uncertainty and persistent capital outflows.

Furthermore, an unwinding of the country’s massive credit bubble threatens to destabilize the banking sector, which Kyle Bass says will need an enormous recapitalization once NPLs are realized. That, in turn will put further pressure on the currency, which should fall by between 30% and 40% Bass reckons

Against this backdrop China is desperately clinging to the notion that Beijing can navigate the increasingly troubled waters without careening into crisis.

Downside risks are “relatively big,” National Development and Reform Commission Chairman Xu Shaoshi admitted, earlier this month, but that won’t sop the economy from growing at a healthy clip, he says. Authorities, he continued, will move to curb overcapacity in an effort to root out misallocated capital and that will invariably lead to job losses, but there are no threats to social stability.

On Friday, officials stepped up efforts to reassure the market about the state of China’s economic transition. “[China’s] top economic mandarins gathered at a historic Beijing guesthouse to present a unified message on the government’s resolve to create a consumer-driven economy and leave behind China’s old formula of relying on cheap exports abroad and infrastructure investment at home,” WSJ reports. “If we miss the window of opportunity” to push through the structural reforms, we would suffer severe consequences,” said Yang Weimin, a deputy director of the Office of the Central Leading Group for Financial and Economic Affairs.

The Rest…HERE

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