Monday, July 13, 2015



Beijing's latest strategy in the fight to rescue collapsing Chinese stock prices involves forbidding local media from using terms like "rescue the market" and "equity disaster". 

Here's a concise recap of the situation:

Officials in Beijing are in the throes of Politburo panic after watching some $3 trillion in market value disappear into thin (and probably polluted) air over the last three weeks. Amid the turmoil, China has resorted to an eye-watering array of policy maneuvers, pronouncements, and plunge protection schemes aimed at arresting the slide.

Nothing has worked; not suspending compulsory liquidation for unmet margin calls, not billions in committed market support from brokerages, not a PBoC backstop for the CFSC, not even a ban on selling by the Social Security Council. And when banning selling doesn't work, you have to ban talking about selling.

Indeed, it's truly amazing to consider the lengths China has gone to over such a short period of time in a futile attempt to resurrect the margin-fueled equity bubble that has served as a convenient distraction for a country that might otherwise be focused on decelerating economic growth and a collapsing real estate bubble.

Because there's still a long way to go before the panicked deleveraging in backdoor margin lending channels runs its course, we expect to see Beijing resort to still more desperate measures to arrest the slide. Meanwhile, Morgan Stanley — whose "don't buy this dip" call might well have been the straw that broke the dragon's back so to speak — is out with a detailed history of China's plunge protection playbook. Below is a visual representation; 

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