Jim Rogers has insisted on various occasions that the Chinese are the best capitalists in the world.
Hard-working, no doubt, but Chinese capitalism has tended to differ from the Western version in that rather than the market allocating financial resources, the state does it instead.
So we should not be too surprised by this:
Another China Bailout? 800 Billion Yuan Stabilization Fund Being Reviewed
The report comes from eeo.com.cn – the online English edition of the weekly EO Chinese newspaper.
Apparently, an un-signed policy document is circulating amongst top officials calling for a huge fund that could buy up mainland stocks in the event of a market crash. Indeed, if the Shanghai Composite were to fall 20 per cent from its current level to 1500 the authorities would reportedly move in to support the top 50 firms listed on both the Shanghai and Shenzhen markets.
The report, which included three pages of discussion and a two-page list of target shares, was first sent using an anonymous internal email account to a mailing list at the Research Center of International Finance (RCIF), under the Chinese Academy of Social Sciences, on October 30. It was later submitted to top banking officials as policy advice, the EO learned.
The document apparently states that some 930bn yuan would be needed to buy all freely-circulating shares in the target 50 firms, but suggests that if the authorities acted sooner rather than later buying just a third of the available stock would suffice.
Is this plan – or even its existence – credible?
The answer is almost certainly “yes.” The Hong Kong authorities hoovered up billions of dollars worth of stock during the 1997 Asian crisis, burning short-sellers and turning a tidy profit in the process.
Related link:
Another China bailout? – eeo.com.cn
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