China stock market protection racket


So China is desperately trying to keep its stock market together, to stop another crash.

The Wall Street Journal reports that the Chinese government is getting China’s securities brokers and fund management firms to step up supervision of margin trading.

Margin trading is the term for leveraged investment practice that utilizes borrowed money to purchase stocks.  Basically, mum and dad investors in China have been borrowing big time to buy stocks and that led to the steep selloff in recent weeks where the market imploded.

China’s stock market has experienced a sharp sell-off since mid-June and the turmoil continued into July despite an aggressive government rescue program. Share prices in Shanghai were down 14 per cent in July, the worst monthly performance since August 2009, according to its benchmark index.

So, how much money did Beijing actually spend trying to support the markets? Economist and Peking University professor Christopher Balding has calculated the money poured into the market by China’s pension funds, the People’s Bank of China,  China’s major securities brokers, China Securities Finance Corp and of course the Chines government and he has arrived at a mind-boggling figure —$1.6 trillion.

That’s more than six times the $247 billion the US government initially spent on the Troubled Asset Relief Program, or TARP, that was used to support financial institutions after the 2008 financial crisis. It’s easily the biggest bailout in history.

Will it help? Probably not. As the Financial Times points out, the amount of money borrowed by government-backed entities to calm the stock market in July alone has already surpassed any increase in capital raised from equity.

Put another way,  China’s stock market is now competing with other borrowers plunging the nation even further into debt.

That makes China a ticking time bomb for the global economy.


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