Caixin Post-Mortem on A-Share Bailout

How Beijing Intervened to Save China's Stocks
In the early days of the sell-off, regulators were relieved to see the Shanghai index cool off. Share prices had been rising quickly since mid-2014, and the index hit a nearly eight-year high in early June. At a press conference on June 26, a CSRC spokesman called corrections necessary components for a stock market's healthy, long-term development.

But within a few days, the government's attitude had swung the other way. The CSRC started preparing emergency measures to counteract the correction. And at the July 4 meeting, securities firms were enlisted to support the market intervention strategy.

A person who attended the meeting but asked not to be named said the securities firms' executives were told what to do – and that there would be no room for negotiating with regulators.

...By July 9, it was clear that all major, market-related agencies of the central government had decided to contribute to the stock exchange intervention effort. These included agencies that regulate the insurance and banking industries, the Ministry of Finance, and the State-owned Assets Supervision and Administration Commission (SASAC), which oversees major state-owned enterprises (SOEs). Even the Ministry of Public Security stepped in by pledging to help regulators hunt down any rules-breaking short-sellers who may have contributed to the sell-off.

CSRC officials were strategizing like generals on a battlefield, people close to the commission said. Every afternoon, after that day's stock trading had ended, CSRC Chairman Xiao Gang and other officials held a special meeting to discuss market conditions.

...There have also been questions about what CSF will do with the stocks now in its portfolio. One analyst recommended the agency hold shares "to build a stronger foundation for short-selling."

"One big lesson from the market collapse is that the stock market does not have a proper short-selling system, and this is where the CSF should beef up its effort," the analyst said.

Some have argued that the CSRC violated its own market-reform policies and rules by ordering securities firms to buy stocks and telling company shareholders not to sell holdings.

"The primary responsibility of regulators is to safeguard the spirit of the contract," which is essential to the rule of law, said Wu Xiaoping, co-founder of a firm that helps stock investors borrow money.
Added an investment banker who did not want his name printed: "Market reform will never be successful if the government resorts to intervention at every a crucial moment"
The price for manipulation is going to rise in the next decade. American politicians will point to this stock market intervention as clear evidence that China doesn't play by the rules on trade and manipulates its currency.

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