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FT: Capital outflows reignite debate between China bulls and bears

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For those who believe China’s economic slowdown is worsening and risks from spiralling debt and wasteful investment are propelling the country toward a financial crisis, the spectre of capital flight lurks behind each new data point. They view capital outflows as a sign of waning confidence in China, and they warn that outflows will drain liquidity from the domestic economy, making it harder for companies and local governments to raise funds.
For more bullish analysts, moderate capital outflows are a sign that China is liberalising capital controls and abandoning its mercantilist obsession with accumulating foreign reserves. They believe that domestic liquidity concerns are unwarranted, since the People's Bank of China has plenty of new mechanisms to expand the money supply to replace the liquidity once created by foreign capital inflows.

The change in China's reserve flows is not the flapping of a butterfly's wings, it is a hydrogen bomb test.

Reuters: AVIC Capital sacks manager after unit probed over share sales

AVIC Capital Co Ltd, controlled by a Chinese state-owned aerospace and defense company, said on Wednesday it had sacked its general manager after China's securities regulator opened an investigation into share-trading by one of its units.

The China Securities Regulatory Commission (CSRC) said on Tuesday it would investigate share "dumping" incidences in a bid to calm gyrating bourses.

Bloomberg: China's Headaches Are the Fed's, Too

With deflation pressures mounting, China's central bank would seem to have plenty of incentive to follow counterparts in Japan, the U.S. and Europe down to zero rates and beyond. Governor Zhou Xiaochuan has held off because of two overriding fears. First, an unknown number of companies might default on dollar debts if a full-fledged QE program depressed the value of the yuan. Second, that kind of stealth devaluation might scuttle Beijing's hopes of adding the renminbi to the ranks of the world's reserve currencies.

Instead of intervening in debt markets as the Fed, Bank of Japan and ECB have, China has thus targeted stocks directly. The goal -- to commandeer assets as a transmission mechanism to gin up growth and confidence -- is the same. Indeed, in some ways the Chinese strategy is even more direct about its aims.

This is the worrying part, though: Just as those other nations have, China is going to have a very hard time exiting from its easing program. And its difficulties are going to compound the challenges faced in Washington, Brussels and Tokyo.

...As Beijing battles hedge funds in the months -- or years? -- ahead, Fed Chair Janet Yellen will also have to keep a close eye on China's dollar holdings. In the second quarter, China's currency hoard fell to $3.69 trillion, the lowest since 2013. Beijing may be tempted to draw down reserves even more to prop up stocks. The slightest whiff China is dumping its $1.2 trillion of dollars would send shockwaves through world markets and U.S. borrowing costs higher.

In recent years, the Fed bent over backward to show it's not a threat to global stability, or to its central banking peers. Now at least some of that burden falls on Beijing.

Shanghai Exchange: 4 stock accounts suspended for abnormal activity, 5 receive verbal warnings.

iFeng: 上交所盘中喊停4个异常账户 口头警示5个账户

This raises the total to 38 suspended/restricted accounts and 5 warnings.

iFeng: 证监会限制34个账户交易 盈峰资本旗下四产品在列

Reuters: China freezes US fund Citadel's account in war on stock speculation

China's markets regulator has frozen a trading account linked to Citadel Securities, a unit of the U.S. group that also owns hedge fund Citadel LLC, as Beijing battles against speculators to prop up China's ailing stock markets.