Bubble Has Burst, 5 Years of Adjustment to Follow

A lot of finance minister and financial media are confused by a bureaucrat who speaks plainly. As best I can tell, they are upset because Zhou Xiaochuan said, "Shit happens."
Bloomberg: G-20 Wrestles Currency Tension as Zhou Says Bubble Has Burst

Zhou Xiaochuan, governor of China’s central bank, told a meeting of Group of 20 finance ministers in Ankara that a stock-market bubble in his country had “burst,” according to Japan’s Taro Aso. Another official present at the talks said China had presented the country’s situation as a new normal.

“It wasn’t enough,” Aso told reporters. “They may have tried to be constructive, but they weren’t detailed enough.”

...The Shanghai Composite index has lost about 40 percent since reaching a three-year high in June. Zhou used the word “burst” three times in his explanation of what is going on with the stock market, according to a Japanese finance ministry official.

The Chinese delegation said they were trying to shift to a different growth model with as little disruption as possible, according to an international official participating in the talks. They said were trying to reduce indebtedness and are planning measures that will regulate swings in the stock market.

China thought they'd do a big debt for equity swap. It blew up in their faces. Now for plan B.

CNBC: China FinMin: Growth of about 7% is the new normal. This is the new normal man made target. Perhaps the most interesting comment by Lou was this:

Finance Minister Lou Jiwei said that central government spending will rise 10 percent this year, more than the 7 percent growth budgeted at the start of the year, according to a statement late Saturday on the People's Bank of China website. China will raise dividend payments from designated state-owned enterprises to make up for any shortfalls.

When you buy stock in an SOE, you get the Chinese government as a partner. If the Chinese government needs cash, it is first in line and simply tells the SOE to send more profits their way. For this reason (and until it changes), A-shares should always trade at a discount to their otherwise fair value.

China can no longer rely on policy supports to achieve 9-10 percent growth, as it may already take several years to digest excess industrial capacity and inventories, he said.

It will go through "labour pains" in the next five years as it aims to complete main structural reforms by 2020, Lou added.

The quality of growth, however, is already improving with 7 million jobs created in the first half of the year, consumption overtaking investment in contributing to economic growth and the balance of payments becoming more even, he said.

Except for the fact the trade surplus increased and consumption is only overtaking investment because investment is collapsing. But otherwise, yeah.

iFeng: 财政部长：今后5年是中国经济结构调整阵痛期 (Finance Minister: These Next 5 Years are China's Adjustment Period)

Lou Jiwei said that the current economic situation in China is still expected within. First, China has made ​​in the past to rely on policy stimulus 9% to 10% growth rate. But this is not sustainable, but also beyond the potential growth rate of China's economy, and lead to overcapacity and a significant increase in inventory, we must gradually absorb capacity and destocking, which could take several years. Meanwhile, the next five years China's economic structural adjustment pains, the main task should also include structural reforms in 2020 is complete. In this process, the Chinese economy will be relying mainly on investment and exports towards more rely on consumer-driven, it will be a difficult adjustment process. Secondly, the Chinese economic cycle and the developed countries is different. The international financial crisis broke out, the developed countries generally start the deleveraging process, but China from 2009 to 2010 began a rapid deleveraging, and to achieve about 10 percent of economic growth, contribute to global economic growth rate of up to 50 %the above. At present, China has entered a phase of deleveraging, economic growth fell to around 7%. But even so, the Chinese economy's contribution to global economic growth is still around 30%.