Following an historically embarrassing day of less than 15 minutes of trading on Thursday. Chinese regulators have decided that perhaps their newly-introduced system of “circuit breakers” wasn’t such a great idea after all, scrapping them today to so-far mixed results.
The China Securities Regulatory Commission had hoped that the “circuit breakers” would be able to provide some much-needed stability for China’s volatile stock market, by shutting down markets when they plummeted by 7%. Instead, investor worries have only been heightened as trading has been cut short in two of the first four days of 2016 after markets hit that milestone.
The CSRC head Xiao Gang has reportedly tendered his resignation for the screw up and the market has gone live today with no “circuit breakers” for protection — though plenty of other security measures remain in place — the result… well it’s been up and down.
— Patrick McGee (@PatrickMcGee_) January 7, 2016
To try and create a better environment for investors , the People’s Bank of China boosted the yuan for the first time in nine days, a decision that initially boosted equities after a nervous start.
But overall the trading has been predictably volatile with both the Shanghai Composite and CSI300 spiking up and then plummeting back down into the red. Who knows where it will stand when you read this.
In 30 mins, Shanghai crossed Thursday's closing level 4 times. pic.twitter.com/dMH9ucKWjt
— Patrick McGee (@PatrickMcGee_) January 8, 2016
Perhaps the more important thing about this whole drama is what is says about the brilliant minds running the country. After a series of colossal screw ups, many observers are beginning to question the popular notion of the ultra-competenace of China’s technocratic leaders. As Bill Bishop writes in his online newsletter Sinocism:
The widely held belief in the competence of Chinese policymakers came under pressure last year after the disastrous policies to first blow a stock market bubble and then try to stop the crash, followed by the poorly communicated and hugely expensive adjustment of the RMB fixing process. Investors though have short memories when greed is involved, and there was a modicum of confidence reappearing at least around the stock market by the end of 2015.
Now that confidence has been totally destroyed by the boneheaded design and implementation of the circuit breaker mechanism. Even if policymakers now modify or remove that mechanism they have dug themselves such a deep credibility hole, domestically and overseas, that even in as populous a country as China there may be a shortage of suckers for stocks.
Why do the policymakers keep making such stupid mistakes? Were they never that competent but just looked smart because there was so much low hanging fruit? Is China’s economy such a mess now that they have no good options left? Or has the policy-making process broken down under the centralization of decision-making under Xi Jinping, the diversion of attention to ideological work with shades of “better red than expert” amidst a cadre cultural revolution, the exodus of experienced financial regulators to both better opportunities in China’s financial sector and interrogations in padded cells, as well as the suffocating pressure of Wang Qishan’s Central Commission for Discipline Inspection (CCDI) inspection teams that justifiably went into all the financial regulators and top financial firms after the stock market crash?