Cracks in the Xi Jinping Put? Despite Government Support, Chinese Stocks Tumble Hard (July 15); Second Straight Loss

The Chinese government has been DESPERATELY trying to rescue and revive her vulnerable stock market market. 

This I call the Xi Jinping Put.

But unlike the relatively more “moderate” interventions or PUTs implemented by the other developed economy peers, the Xi Put includes several draconian capital controls and price controls measures. Pls read the list here.

And the Xi government’s panic to save her stock markets looks increasingly more like the accounts of the early Middle Age King Gnut or popularly known as King Canute in dealing with political power. According to historical accounts, King Canute famously ordered sea waves to stop. The King wanted to show his sycophants the limits of his power. To the contrary, the Chinese version has been designed to exhibit the dominance of politics over markets. In short, the modern day version would fit what the great Austrian economist F. A. Hayek called as the 'fatal conceit'

So for three days the political ‘spell’ seemed to have worked. However, such magic seem to be fading as selling pressures have resurfaced. 

Today’s 3% loss by the Shanghai Composite has been compounded by yesterday’s 1.16% drop.

From the Bloomberg: China’s stocks fell for a second day after better-than-expected economic data failed to boost investor confidence in the world’s worst-performing equity market over the past month. The Shanghai Composite Index slid 3 percent to 3,805.70 at the close, paring earlier declines of 4.7 percent as the nation’s largest companies climbed. With 701 stocks halted on mainland exchanges and at least another 1,240 falling by the 10 percent daily limit, sellers were locked out of about 67 percent of the Chinese market. The two-day losses pared the gauge’s rebound from its July 8 low to 8.5 percent. (bold mine)

Why the difference between the muted losses of the indices relative to the broad market performance?

 

As tweet of the South China Morning Post Editor George Chen reveals, the government and her networks pumped up the index heavyweights, while this reduced index losses, such actions failed to prevent a broad based meltdown

The broad based carnage can be seen in the above, as most indices suffered 3%+ losses.

Curiously the government’s announcement of improved economic numbers: 2q 7% GDP, June’s 10.6% growth in retail sales 6.8% growth in industrial production and 11.4% growth in fixed asset investment failed to stop today's rout.

Will today's session lead to the second leg of China's stock market crisis?

I previously shown how the Bloomberg compared the Chinese stock market crash to the Wall Street Collapse during the Great Depression.

 

Fathom Consulting at the Thomson Reuter’s Alpha Now says that Chinese stocks resemble the bursting dotcom bubble. 

Whether 1929 or 2000 the outcome of the crash has been a recession. Will the same hold true for China?  

Morgan Stanley says that China's next export to the world will be recession. I believe it will be more than a recession, it will be a crisis.

I wonder what the Chinese government will do next? Will they announce an open ended buying on stocks by the PBOC? Or will they just close stock market?