This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

China's Unprecedented Proactive Bubble-Bursting

NEW YORK ( TheStreet) -- What has been happening in Chinese market since about a week ago is much more spectacular and profound than the official FOMC taper talk in many ways. Although it may not impact many investors in the U.S. directly, I suspect people interested in monetary policy and financial regulation will talk about it for a long time to come.

Overnight Shibor, the Chinese equivalent of Libor, or the benchmark rate for inter-bank short-term borrowing, shot as high as 13.44% on June 20. As a comparison, Libor overnight peaked at 6.88% during the 2008 crisis. Overnight repo rate was even crazier, reaching 25% briefly, though on very small volume. This is full-scale panic by any measure. It has calmed down quite a bit since, with the latest overnight Shibor at 5.736%. Still stressed, but no longer hyperventilating.

But more striking is what's not happening. People's Bank of China, China's central bank, did nothing. Yesterday it published a memo, issued to all major banks on June 17, saying that inter-bank liquidity is aplenty, we ain't seen no problems, y'all should watch out your risk management and plan ahead, good luck kids. In contrast to the hysterical cry of "the end is nigh please, pleeeeeze have some mercy for Mao's sake" all over Chinese financial industry, the apathy is both comical and intriguing.

And the cruel aloofness gets more striking considering that PBoC has made doves in the Fed look hawkish since the 2008 crisis. The moment any bank made a fuss, PBoC was there to provide liquidity, so much so that it earned a popular nickname of "Central Mommy," used with both affection and mockery (more of the latter, I suspect).

What prompted this 180-degree turnaround and what are the implications?

The credit/blame goes to the very top; after all, the PBoC head, Zhou Xiaochuan, has been one and the same since 2003 (and don't even think about Chinese central bank independence, which is a bigger joke than the general central bank independence). The last leadership in Beijing, which covered from 2002 to 2012, had been spectacularly mediocre and incompetent in every way, perhaps purposefully so by the entire leadership and those who chose them.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FXI $32.25 -1.20%
SINA $50.48 1.20%
AAPL $94.30 -0.92%
FB $118.08 0.55%
GOOG $695.81 0.50%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs