"Ridiculous": $1 Trillion In Orders For $7 Billion Chinese Bond

In recent years, hardened bond market cynics snickered when insolvent European nations such as Italy or Greece saw 4, 5, or more times demand for their bond offerings than was for sale, whispering to themselves that such oversubscriptions for potentially worthless debt assure a very unhappy ending. Yet not even the biggest cynics were prepared for what just happened in China.

When Shanghai Pudong Development Bank sold $7 billion in convertible bonds last month, investors placed more than $1 trillion worth of orders, making this a 140 times oversubscribed offering, enough to shock even the most seasoned China investor, the FT reports.

That $1 trillion in bids was almost as large as the entire stock-market capitalisation of Apple or Microsoft — the two biggest companies in the world. "It was a ridiculous amount," said Gerry Alfonso, head of research at Shenwan Hongyuan Securities in Shanghai. It is also a testament to how desperate the world has become in chasing yields and return, as well as just how much excess liquidity there is in the market at the moment

While new issue oversubscriptions have become the norm in recent years, this absurd case had several Chinese market unique characteristics, reflecting a surge in issuance of such equity-linked instruments in China — a rise helped by what the FT called "an unusual embrace of the product by policymakers better known for cracking down on financial innovations to ensure stability."

So far this year, Chinese companies have issued a record $40bn in convertible bonds, up more than 80 per cent from the full-year total in 2018, according to Dealogic.

It now appears that converts have become the latest Chinese bubble due to their hybrid characteristics: while they carry a (lower) coupon payment they also offer investors the right to switch them for equity if a company’s shares rise to a certain price. For companies, convertibles offer a way to raise money more cheaply than by issuing regular debt and do not immediately dilute shareholders’ equity.

Ronald Wan, chief executive at Partners Capital in Hong Kong, said Chinese convertibles had become more attractive to investors thanks to this year’s stock rally, while the government was promoting the instruments as a way to rein in financing done off-balance sheet, or through a fragile shadow banking sector. Naturally, Wan cautioned that convertibles’ performance "depends on the quality of the issuer", with investors typically prefering large banks and big blue-chip companies over small and mid-sized issuers, especially in a time when China's smaller banks are either hit by bank runs or outright getting bailed out.

Shenwan's Alfonso meanwhile warned that while large issuers such as Shanghai Pudong have seen ample liquidity in their convertibles after listing, investors in smaller issuers faced the prospect of taking heavy losses in the event of a sell-off.

"The liquidity is bad but there is liquidity,” he said. “The thing is, the price you’re going to get there is pretty horrendous."

That, however, is not preventing every investor scrambling to be allocated a piece of the original bond in hopes of an early pop which can then be sold.

Read the entire article

China Just Injected The Most Liquidity Since January... And It's Not Enough

Just days after China's GDP unexpectedly dropped to a sub-consensus 6.0%, the lowest in three decades (with Beijing now set to reveal a 5-handle GDP in the coming months), China watchers were convinced that this week would start with Beijing again lowering its "Libor rate", i.e., the previously discussed Loan Prime Rate, especially with the Fed expected to cut rates once again next week. However, that did not happen as China kept its one-year prime rate for new corporate loans unchanged in October, at 4.2%, and above the 4.15% consensus estimate. The five-year benchmark was also kept unchanged at 4.85%.

As we reported previously, the Loan Prime Rate, also called China's "Libor", is a revamped market indicator of the price that lenders charge clients for new loans, and is linked to the rate at which the central bank will lend financial institutions cash for a year. The rate, which is updated once a month, is made up of submissions from a panel of 18 banks, although ultimately it is Beijing that sets the final rate.

Analysts were quick to step in and "explain" away the unexpected move: Commerzbank's Zhou Hao said that a static one-year rate shows China “may be trying to balance the shrinking margins of banks with support to the real economy,” adding that "the PBOC remains restrained on policy easing.”

The market, however, was less sanguine, as the PBOC's lack of easing was promptly taken as an ill-omen: China's government bonds dropped while money-market rates climbed, amid bets that the policy makers are not in a rush to loosen monetary policy (why? perhaps China's gargantuan debt load and rapidly devaluing currency have something to do with it). On Monday, the yield on 10-year sovereign notes rose three basis points to 3.22%, the highest since July 1, while the costs on 12-month interest-rate swaps advanced to the highest level since late May.

While the Chinese economy has been under pressure amid a prolonged trade dispute with the US, many have expected that the central bank would match the Fed's easing and lower corporate borrowing costs and further cut bank reserve ratios. However, so far the PBOC hasn’t embarked on an aggressive stimulus program as some market watchers had hoped.

Read the entire article

Shanghai Housing Sales Plunge 86% In Golden Week

Golden Week, a seven-day Chinese holiday, is traditionally a peak period for home sales.

This year, sales plummeted.

The South China Post reports ‘Golden Week’ Property Sales Plunge in Major Chinese Cities.

Property sales in China’s major cities saw one of their worst “golden week” holidays in years, as buyers held back amid a slowing economy and tight restrictions on mortgage loans.

Sales of new homes in Beijing dropped to their lowest level since 2014 during the week following the National Day holiday, according to data from the property information portal Zhuge.com.

By area, sales of new homes in Shanghai plummeted 86 per cent to 5,000 square metres, while the capital saw a 92 per cent plunge to 2,000 sq metre, according to data from Centaline Property.

Read the entire article

Just Three Of World's Top Ten Banks Signed UN Climate-Goals Commitment

Just three of the world's 10 biggest banks agreed to join a coalition of 130 global financial firms which have agreed to reshape their business to align with international efforts to address climate change and other environmental issues according to Bloomberg. 

Citigroup, Mitsubishi UFJ Financial Group and Industrial and Commercial Bank of China joined the United Nations' Principles for Responsible Banking pledge, which now represents $47 trillion in assets - or 1/3 of the global banking industry according to UN Secretary-General Antonio Guterres during a Sunday launch event. 

Other signers include "European banks BNP Paribas SA, Barclays Plc and UBS Group AG," which have agreed to map out and publish plans by 2023 governing their targets for sustainability. 

Guterres implored banks to increase financing for green-growth businesses, and to "Invest in climate action and divest from fossil fuels and pollution in general." 

Read the entire article

China Cuts Required Reserve Ratio Releasing $126BN In Liquidity; Yuan Surges

As had been widely previewed in China's official financial press in recent days, on Friday the PBOC announced it would cut the required reserve ratio (RRR) for all banks by 0.5% effective Sept. 16 (and by 1% for some city commercial banks, to take effect in two steps on Oct. 15 and Nov. 15), releasing 900 billion yuan ($126 billion) of liquidity, helping to offset the tightening impact of upcoming tax payments.

While today's rate cut was more than the previous cuts in January and May, which released 800 billion yuan and 280 billion yuan, respectively, the PBOC stated that “China won’t adopt flood-like monetary stimulus” and that they will continue “prudent” monetary policy to “keep liquidity at (a) reasonably ample level" and will "strengthen the counter-cyclical adjustment" which is basically gibberish for it will do whatever it sees appropriate.

With the Chinese economy slowing drastically in recent months, with various economic indicators at multi-decade lows, the RRR cut was aimed at supporting demand by funneling credit to small firms and echoes the earlier cuts this year. Indeed, as Bloomberg notes, China’s economy softened substantially in August after poor results in July, and will likely deteriorate further in the remainder of the year. Trade tension between China and the U.S. expanded onto the financial front recently after China allowed the currency to decline below 7 a dollar, prompting the U.S. to name it a currency manipulator.

Anticipating cries of foul play from Trump's twitter account which is just minutes away from unleashing hell at the Fed for not doing what China is doing, the cut "doesn’t reflect an aggressive easing," said Commerzbank economist Zhou Hao. "In fact, China has recently massively tightened property financing. Hence this is still a re-balancing - to lower the funding costs for the manufacturing sector but tighten liquidity in the property sector due to asset bubble concerns."

Read the entire article

Hong Kong’s Economy Is Still Important to the Mainland, at Least Financially

Beyond funding, Hong Kong is China’s most important springboard for foreign direct investment, either into or outside China. In particular, 64% of Mainland China’s inward FDI comes from Hong Kong and between 2010 and 2018, 65% of outward FDI was channelled through Hong Kong. The high share indicated Hong Kong’s role as the immediator between China and the West, which is due to the trust of Chinese and foreign firms on Hong Kong’s institutional framework and funding pool for their investments. In the specific case of mergers and acquisitions, Hong Kong has played a key role as its unique status has facilitated Chinese companies’ overseas acquisitions.

In addition, Hong Kong has long been China’s largest offshore RMB centre, for long a key policy initiative of the Chinese government in its pursuit of a staggered opening of the capital account. Other than RMB settlements, Hong Kong also holds a special access to China’s equity and fixed income markets, though the Stock and Bond Connect.

Therefore, Hong Kong’s role as the China’s financial arm for the rest of the world has helped Mainland China in keeping its financial sector insulated without suffering the negative consequences of such isolation, i.e. limited access to finance or difficult access to assets in the rest of the world. In essence, Hong Kong has long been China’s financial firewall.

The second important aspect to consider is that Hong Kong’s financial system is increasingly dominated by Mainland Chinese banks. At the same time, overseas bank assets held by Mainland Chinese banks are also heavily concentrated in Hong Kong. The large exposure means that the destiny of Hong Kong as an offshore financial centre affects China even more than it affects those from the rest of the world. Mainland Chinese financial institutions have expanded 3.2 times since 2010, reaching USD 1.2 trillion and have had a much higher growth rate than the rest of the banking sector.

Read the entire article

Hong Kong Activist Leader Calls For A Run On Chinese Banks Tomorrow

Prominent Hong Kong pro-independence political activist Chen Haotian has called for a run on Chinese banks, asking that everyone withdraw their money on the same day.

Haotian is a founding member and the convenor of the Hong Kong National Party.

Arguing that large scale protests have only led to injuries and escalating police brutality, Haotian believes another method could be used to severely undermine China’s influence – a good old fashioned run on the bank.

He suggested that another method could be used, namely, impacting the financial system,” reports China Press.

“He called on Friday (August 16) that Hong Kong citizens take out all bank deposits. The primary goal is Chinese banks, but he said other banks should also be targeted, otherwise Chinese banks can borrow money from other banks to solve problems.”

Read the entire article

Chinese Banks No Longer Trust One Another As Repo Rates Skyrocket

For those who have grown bored with the ongoing US-China trade war whose escalation was obvious to all but the dumbest BTFD algos, the biggest news of the past week was that yet another Chinese bank was bailed out by the Chinese government - the third in the past three months - and a substantial one at that: with over 1.4 trillion yuan in assets ($200BN), Hang Feng Bank's nationalization was certainly large enough to make a dent on the Chinese financial system and on the Chinese Sovereign Wealth Fund, which drew the short straw and was told to bailout the troubled Chinese bank (more here).

Hang Feng's bailout followed those of Baoshang and Bank of Jinzhou, which means that 3 of the top 4 most troubled banks have now been either nationalized by an SOE or seized by the government, which is effectively the same thing.

Of course, to regular readers this development was hardly surprising, especially after our post in mid-July when we saw the $40 trillion Chinese banking system approach its closest encounter with the proverbial "Lehman moment" yet, when inexplicably the four-day repo rate on China’s government bonds (i.e., the cost for investors to pledge their Chinese government bond holdings for short-term funding) on the Shanghai exchange briefly spiked to 1,000% in afternoon trading.

While some attributed the surge to a fat finger, far more ominous signs were already present, and in the aftermath of the Baoshang failure, which has sent Chinese banking stocks tumbling, one-day and seven-day weighted average borrowing rates had remained low thanks to huge central bank cash injections - such as the 250BN yuan we described back in May  - longer tenors such as the 1 month repo have marched sharply higher.

Read the entire article

Chinese Bank With $105 BN In Assets On Verge Of Collapse

While the western world (and much of the eastern) has been preoccupied with predicting the consequences of Trump's accelerating global trade/tech war, Beijing has had its hands full with avoiding a bank run in the aftermath of Baoshang Bank's failure, scrambling to inject massive amounts of liquidity last week in the form of a 250 billion yuan net open market operation to thaw the interbank market which was on the verge of freezing, and sent overnight funding rates spiking and bond yields and NCD rates higher.

Unfortunately for the PBOC, Beijing is now racing against time to prevent a widespread panic after it opened the Pandora's box when it seized Baoshang Bank two weeks ago, the first official bank failure in a odd replay of what happened with Bear Stearns back in 2008, when JPMorgan was gifted the historic bank for pennies on the dollar.

And with domino #1 down, the question turns to who is next, and will they be China's Lehman.

This was the question we asked last Thursday, when we published a list of regional banks that have delayed publishing 2018 reports, the biggest red flag suggesting an upcoming bank solvency "event."

Read the entire article

Behind The Recent Crypto Surge? Chinese Banks Are Quietly Running Out Of Dollars

Cryptocurrencies have had a good run in recent weeks, as a sudden renewed demand has lifted all boats and taken Bitcoin back near $6000 this morning...

The catalyst has remained unclear - anticipation of an ETF? Growing institutional interest? Short-squeeze? Manipulation? Or, just plain old safe-haven flows as various nations around the world collapse into totalitarianism?

We may have found one, rather large, answer - from China, where, as SCMP reports, authorities have quietly begun 'soft' capital controls on foreign currency withdrawals

Chinese banks have increased their scrutiny of foreign-currency withdrawals and quietly reduced the amount of US dollars people are allowed to withdraw, tightening the country’s capital controls as the nearly year-long US-China trade war bites.

The issue was thrust into the spotlight on Friday when a viral video clip showed a bank cashier unable to answer a furious customer demanding to know why she was not allowed to withdraw US$200 from her dollar-denominated account, even though she was within her quota.

Read the entire article

China's Debt Bomb Is Ready To Explode

The great Chinese growth slowdown has been proceeding in stages for the past two years. The reason is simple. Much of China’s “growth” (about 25% of the total) has consisted of wasted infrastructure investment in ghost cities and white elephant transportation infrastructure.

That investment was financed with debt that now cannot be repaid. This was fine for creating short-term jobs and providing business to cement, glass and steel vendors, but it was not a sustainable model since the infrastructure either was not used at all or did not generate sufficient revenue.

China’s future success depends on high-value-added technology and increased consumption. But shifting to intellectual property and the consumer means slowing down on infrastructure, which will slow the economy.

In turn, that means exposing the bad debt for what it is, which risks a financial and liquidity crisis. China started to do this last year but quickly turned tail when the economy slowed. Now the economy has slowed so much that markets are collapsing.

But doesn’t China have over $1 trillion of reserves to prop up its financial system?

Read the entire article

China Crashes As Flood Of Margin Calls Sparks "Liquidity Crisis", Panic Selling

The Treasury's latest semiannual FX report may have spared China the designation of currency manipulator (for now... in a new twist, there was a section dedicated exclusively to China in the Executive Summary, a clear signal from the Treasury that China is the disproportionate focus of the report stating that 'it is is clear that China is not resisting depreciation through intervention as it had in the recent past'), but the market was not as forgiving.

In the latest shock to Chinese confidence and stability, overnight Chinese shares extended the world’s worst slump as the yuan touched its weakest level in almost two years, testing the government’s ability to maintain market stability and calm as risks continued to mount for Asia’s largest economy.

Two days after we reported that concerns about pledged shares, in which major investors put up stock as collateral for personal loans - a disastrous practice when stock prices are dropping, emerged as a key pressure point for China's market, overnight Bloomberg reported that "rising fears of widespread margin calls fueled a 3 percent tumble in the Shanghai Composite Index, which sank to a nearly four-year low as more than 13 stocks fell for each that rose."

The concentrated selloff, sent the Shanghai Composite down 2.9%, closing at session lows of 2,486, the lowest level since November 2014, as China's plunge-protecting "National Team" was nowhere to be seen.

Read the entire article

China Is Now Left With Just Three Options, And They Are All Equally Bad

Last Friday's forceful intervention by the PBOC, in which the central bank hiked the reserve requirement for FX forwards trading from 0% to 20%, was a warning shot at the gathering yuan shorts who managed to briefly send the Chinese currency below 6.90 against the dollar last week, after losing 4% of its value in the past month, and bringing the cumulative decline against the dollar to 10% since April, a far steeper drop than seen during the 2015 devaluation.

The yuan slide had come amid growing speculation that Chinese authorities are more willing to let their currency weaken along with market forces and an escalating trade war, at least for as long as they felt any capital account leakages are contained and manageable.

And yet, despite China's long overdue intervention - after all, once capital flight begins as new holes in the capital account are uncovered, it would be too late to prevent a repeat of the 2015 scenario - the debate about Chinese currency depreciation and what happens next with Chinese policy gathered pace, with ING last week proposing that this latest attempt to "nuke the shorts" is doomed to failure, just like previous unilateral FX interventions.

Over the weekend, JPMorgan echoed ING's skepticism, writing that despite Friday's PBoC announcement and despite the cumulative depreciation over the past two months, "the pressure on the Chinese renminbi to decline further against the dollar is unlikely to go away if trade tensions with the US escalate further from here."

Meanwhile, in a move that puzzled many China watchers, at the same time that the PBoC announced an increase in the reserve requirement ratio for fx forwards trading, China announced that it would implement tariffs on $60bn of imports in response to a threat by the US earlier this week to raise the tariff rate from 10% to 25% on $200bn of Chinese exports to the US, prompting some to speculate that the FX intervention was merely implemented to prevent a collapse in the yuan beyond 7.00 vs the dollar as the market freaked out about the latest Chinese retaliation.

Read the entire article

Yuan Tumbles To 6-Month Lows As SGH Warns China Will Seek To Reduce US Treasuries "Appropriately"

The 'weaponized' yuan continues its collapse - back above 6.6 per USD for the first time since December and down 6% from the March highs.

Chinese stocks are fading at the open after yesterday's bounce in Shenzhen and CHINEXT (tech-heavy) indices...

And this comes shortly after Bloomberg reports that, according to a macro-research firm SGH Macro Advisors, China is girding for a full-scale trade war, and U.S. Treasuries may not be immune to the skirmish.

President Xi Jinping presided over a meeting of China’s highest decision-making body for the first time to discuss China-US relations, according to Sassan Ghahramani, CEO of SGH Macro Advisors, in a note to clients.

At a subsequent two-day meeting, Xi reportedly spent over two hours talking about U.S.-China relations and called on all provinces and ministries to be prepared for a full-scale trade war, according to Ghahramani.

Chinese officials have concluded it appears inevitable the U.S. will impose tariffs on $34 billion worth of Chinese goods on July 6, and will respond accordingly with tariffs of their own.

Contrary to reports last week, SGH's understanding is there have been no talks between the Commerce Departments of the two sides.

In the short term, officials expect the currency will weaken due to trade concerns.

The PBOC also will refrain from increasing holdings of U.S. Treasuries and, in fact, will seek to reduce them "appropriately," Ghahramani writes.

Read the entire article

China Studying Yuan Devaluation As Retaliation To Trade War; CNH Slides

Overnight we got a clear lesson why this highly convex trade would be prudent in the current trade war environment, when Bloomberg reported at 3am EDT that China is "evaluating the potential impact of a gradual yuan depreciation" citing people familiar with the matter said, as the country’s leaders are weighing their possible responses in the escalating trade war with President Trump.

As a reminder, a devaluation was one of the "nuclear" retaliation options listed here on Friday, and is certain to provoke an even harsher response by the US. Still, this appears not to have spooked senior Chinese officials who are reportedly studying a "two-pronged analysis of the yuan that was prepared by the government": one part looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China depreciates the yuan to offset the impact of any trade deal that curbs exports.

Still, the analysis doesn’t mean officials will carry out a devaluation, which would require approval from top leaders.

In kneejerk response, both the onshore and offshore yuan weakened as much as 0.2% to 6.3186 per dollar in onshore trading and 6.3211 for the offshore pair.

At the same time, the dollar climbed against the yen and other EM currencies in response: "USD seems to be regaining some ground on the back of the headline" said Valentin Marinov, head of G-10 FX research at Credit Agricole. “The story seems to suggest that the Chinese are discussing the idea of FX depreciation rather than work on an imminent change in FX policy."

Ironically, while Trump has bashed China on the campaign trail and more recently on Twitter, for keeping its currency artificially weak, the yuan has gained about 9% against the greenback since he took office and has been steady in recent weeks despite the escalation of trade tensions between the world’s two largest economies, prompted by a weaker dollar. The Chinese currency touched the strongest level since August 2015 last month.

Read the entire article

China's "AIG" Moment Arrives: Beijing Bails Out "Systemically Important" Anbang, Chairman Removed

In November of last year, we set forth the four candidates that would trigger China's downfall and expose the Potemkin village economy as nothing but a facade...

It might be Anbang - the acquisitive insurance behemoth – see “Anbang Just Became A ‘Systemic Risk’: Revenues Crash As Its Chairman Is “Detained”

It might be China Evergrande – the developer of “ghost” properties and described by J Capital’s, Anne Stevenson-Yang as “the biggest pyramid scheme the world has yet seen” – see “Stevenson-Yang Warns ‘China Is About To Hit A Wall”.

It might be HNA. The highly-leveraged Chinese conglomerate, which has been on an overseas acquisition binge, is paying more for a 363-day dollar loan than serial defaulter, Argentina, paid on a 100-year loan earlier this year.

Or It might be Dalian Wanda, which established itself building and operating commercial property, luxury hotels, culture and tourism, and department stores. While the company has its roots in property and infrastructure, it recently begun to push in a bold new direction: investing in all six of Hollywood's major studios.

And now we know

A day after banning VIX, it appears China has finally reached its "Minsky Moment," or in the case of echoing America's demise, its "AIG Moment."

According to the China Insurance Regulatory Commission website, China regulators to take control of Anbang Insurance from Feb. 23, 2018 to Feb. 22, 2019.

Read the entire article

How "Ghost Collateral" And "Yin-Yang" Property Deals Will Collapse China's Credit Bubble

One lesson from the 2007-08 crisis was that the vast majority of financial market participants, never mind the general public, were unfamiliar with subprime mortgages until the crisis was underway. Even now, we doubt many have much understanding of repo, the divergence between LIBOR and Fed Funds from 9 August 2007 and Eurodollar liquidity. In a similar way, when China’s bubble bursts, we doubt the majority will be that familiar with “ghost collateral” and “yin-yang” property contracts either.

A second lesson from the 2007-08 crisis was that as the value of the collateral underpinning the vast amount of leverage declined, the surge in margin calls led to cascading waves of selling in a downward spiral.

A third lesson was that the practice of re-hypothecating the same subprime mortgage bonds more than once, meant collateral supporting the most vulnerable part of the credit bubble was non-existent. It only became apparent with the falling prices and margin calls. Few people realised the bull market was built on such flimsy foundations, as long as prices kept rising.

A fourth lesson was that in order for the bubble to reach truly epic proportions, key financial institutions, especially banks, needed to conduct themselves in a negligent fashion and totally ignore increasing risks.

Each of these warning signs from the 2007-08 crisis exists in China’s property market now – and other parts of its financial system - bar one…falling prices leading to cascading waves of selling. However, as we’ll explain, we think it’s only a matter of months away now.

Read the entire article

China's Central Bank Warns "Bitcoin Will Die" - Here's How

On the heels of a weekend full of threats and promises from governments, bankers, and the mainstream media, Bitcoin was lambasted once again overnight, this time by The People's Bank of China.

For a brief 6 months or so, China was the dominant region for Bitcoin in the world, but then  - as capital flows accelerated - the government and central bank began to 'crackdown' on crypto, first by banning ICOs and then shutting down local exchanges. Volume disappeared...

Looking back at the crackdowns, QZ reports that Pan Gongsheng, a deputy governor of the People’s Bank of China, believes Beijing made the right decisions.

"If we had not shut down bitcoin exchanges and cracked down on ICOs several months ago, if China still accounted for more than 80% of the world’s bitcoin trading and ICO fundraising, everyone, what would happen today? Thinking of this question makes me scared."

QZ further notes that Pan went on to share a recent column by economist Éric Pichet in the French newspaper La Tribune (link in French). In it, Pichet, a professor at the Kedge Business School in France, makes a familiar argument that bitcoin is a bubble waiting to burst, just like the tulip mania in the 1600s and the Internet bubble of 2000.

He predicts that bitcoin will die of a grand theft, a hack into the blockchain technology behind the cryptocurrency (which actually is unlikely), or a collective ban by global governments.

Read the entire article

Chinese Stocks Plummet: Shanghai Tumbles Most In 17 Months As Bond Rout Spreads

The euphoria from the year-end melt up in Europe and the US failed to inspire Chinese traders, and overnight China markets suffered sharp losses, with the Shanghai Composite plunging 2.3%, its biggest one day drop since June 2016, over growing fears that the local bond rout is getting out of control. Both the tech-heavy Chinext and the blue chip CSI 300 Index dropped over 3%, as the sharp selloff accelerated in the last hour, as Beijing's "national team" plunge protection buyers failing to make an appearance. There were sixteen decliners for every one advancing share.

In addition to tech, consumer non-cyclical and health-care sectors, the hardest hit names were banks such as ICBC, Ping An Insurance and Kweichow Moutai. Over in Hong Kong, the Hang Seng Index slid 1 percent from a decade-high, one day after closing above 30,000.

Confirming our report from last week, that traders were stunned by an official warning from Beijing that some stocks - in this case Kweichow Moutai, one of the most popular stocks among investors  - had risen "too far, too fast", Ken Peng, strategist at Citi private bank, told CNBC Thursday that over the weekend he had heard views about particular Chinese stocks having moved too fast. He also said that Thursday's downward move was impacted by "relative tight liquidity conditions in financial markets overall, because of a more stringent liquidity policy by the central bank."

"The decline in Moutai has triggered selloffs in some of this year’s best performing stocks," said Zhengyang Shen, Shanghai-based analyst at Northeast Securities. "When those giant stocks fall, retail investors will follow to sell their holdings. The ChiNext stocks do not have much support from the national team, so they fell even more," he said, referring to state-backed funds.

Read the entire article

China's Mortgage Debt Bubble Raises Spectre Of 2007 US Crisis

Behind the dream of property ownership they share with many like-minded friends lies an uninterrupted housing price rally in major Chinese cities that dates back to former premier Zhu Rongji’s privatisation of urban housing in the late 1990s.

Rapid urbanisation, combined with unprecedented monetary easing in the past decade, has resulted in runaway property inflation in cities like Shenzhen, where home prices in many projects have doubled or even tripled in the past two years.

City residents in their 20s and 30s view property as a one-way bet because they’ve never known prices to drop. At the same time, property inflation has seen the real purchasing power of their money rapidly diminish.

“Almost all my friends born since the 1980s and 1990s are racing to buy homes, while those who already have one are planning to buy a second,” Mai, 33, said.

“Very few can be at ease when seeing rents and home prices rise so strongly, and they will continue to rise in a scary way.”

Read the entire article