China Not Powerless But Market Drop a Tough Lesson

China’s president, Xi Jinping, is putting a great deal of effort into projecting an image as the country’s most powerful leader since Mao Zedong. Much of Beijing shut down over the weekend as scores of troops, tanks and other military vehicles streamed into the country’s capital to rehearse for an impending military parade.

But just a day after images of the country’s immense state power flooded Chinese social media, they were filled with news of a staggering plummet on the country’s stock exchanges. The government’s efforts to prop up stock prices in the world’s second largest economy hit a brick wall on Monday, as stocks suffered their biggest fall since 2007, when state intervention into the country’s bourses failed.

The CSI 300 index breached the 3,500 mark – seen by many local investors as a red line the government would not allow it to fall through – and closed down nearly 9% at 3,275. Xinhua, the Chinese state-owned news agency, called the rout “Black Monday” on Twitter.

The V-Day celebrations, due to occur on 3 September, are designed to be a showcase of Xi’s power and credibility and are clearly aimed at a domestic audience. But increasingly, when it comes to the economy, his and the government’s credibility are taking a hammering. Beijing’s reputation as skilful and competent economic managers – built up over years of breakneck economic growth – is in tatters after a two-month long stock market rescue operation has faltered.

via The Guardian

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza