China’s sudden stock market plunge in the summer of last year took many investors by complete surprise, it seems that the same was true for regulators who reached out to an unlikely source to help deal with the ongoing crisis.
In a July 27, 2015 email obtained by Reuters via FOIA request, People’s Bank of China representative Song Xiangyan wrote to senior US Federal Reserve director Steven Kamin asking for a hand. With the subject line “Your assistance is greatly appreciated!” Song explains that following the one-day 8.7% drop in stocks “my Governor would like to draw from your good experience in Oct 1987.”
“Could you pls. Inform us ASAP about the major measures you took at the time, particularly the specifics of the repurchase agreements signed by the enterprises with total amount of $6.2 billion?” Song continues.
For posterity– that PBoC email seeking Fed advice for China's market crash. Reuters 1st reported; we FOIA'd it too. pic.twitter.com/HfejU2m7oZ
— Neil Gough (@n_gough) March 22, 2016
From his Blackberry, Kamin quickly replied “We’ll try to get you something soon.” Five hours later, he sent over a summary of the actions taken by the Fed to deal with the “Black Monday” crash on Wall Street in 1987.
He also attached a plethora of documents dealing with the episode, along with notes to help guide PBOC officials through their readings. Kamin admitted that all of the documents were already publicly available on the Fed’s website. “I hope this is helpful,” he added.
It’s unclear if it was. By the time that the email arrived at Kamin’s inbox, Chinese officials had already been dealing with a sliding stock market for more than a month. The “uneducated investors” that had been making a killing and driving China’s stock market, were quickly losing all their money. Some were forced to sell their alpacas on the street. Meanwhile, Asia’s three richest men lost a combined $5.6 billion. In Reuters analysis, even before the mail was sent, the PBOC had already taken measures similar to those taken by the Fed in 1987.
It’s also unclear if China’s central bank has reached out to the Fed again to help with the series of stock plunges that have plagued the Chinese market since. The Chinese stock exchange was hit particularly hard at the beginning of the year when it tried to employ “circuit breakers” to ward off another potentially devastating crash. This mechanism automatically shut down trading for the day when stocks plunged by 7% or more. In two of the first four trading days of the year, the Chinese stock exchange was closed down prematurely, on one day it was open for just 15 minutes.
At the National People’s Congress earlier this month, a Shanghai businesswoman and representative told the assembly: “The ten years of stock market development since 2007 is a decade of tears for Chinese investors.”
We all need somebody to lean on.