PRC Stocks: China's Own Plunge Protection Team

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Waning stocks? China has its own version of this fellow.

Financial markets are not known to be an especially humorous topic given how much is at stake. More so now with so many persons' savings invested in them, panics and crashes have become anathema to the public at large and the officials who seek to curry their favor. In the United States, this dynamic has given rise to the so-called "Plunge Protection Team" that supposedly stands at the ready to buoy financial markets if they are headed south:

A colloquial name given to the Working Group on Financial Markets. The Plunge Protection Team was created to make financial and economic recommendations to various sectors of the economy in times of economic turbulence. The team consists of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission...

"Plunge Protection Team" was the nickname given to the Working Group by The Washington Post in 1997. The team was initially perceived by some to have been created solely to shore up the markets or even manipulate them. The team was created in response to the 1987 market crash.

It's quite conspiratorial in nature given the alleged involvement of so many different actors in a vast, highly fragmented market who nevertheless have supposed powers to keep these markets away from crashing. 

Nowadays, the world's greatest worries over a stock market plunge have gone to China, whose stock markets combined have the world's second-largest market capitalization. Although PRC officials like to ascribe "market status" to themselves, in the realm of equities trading at least, this claim is highly dubious. Witness current efforts to prop up Chinese stock market indices in the run-up to the 19th National Congress in H1 2017. Insofar as Xi Jinping regards tanking markets as a negative verdict on his economic stewardship, he's supposedly ordered state bodies to help prop up PRC stocks. Others also reason that he doesn't want to be embarrassed at Davos:

Volatility in Chinese shares waned amid speculated state efforts to ensure market stability during President Xi Jinping’s appearance at the World Economic Forum in Davos.

The Shanghai Composite Index added 0.1 percent at the close, with 10-day volatility at the lowest level since September. State-owned investors bought shares to steady the market on Monday, while some funds were guided on Tuesday not to sell holdings with big weightings in benchmark indexes, people familiar with the matter said, asking not to be identified because they aren’t authorized to discuss the matter publicly...

Chinese authorities have been known to intervene in markets before events of political importance, with government funds stepping in to boost share prices before a key meeting of the National People’s Congress last year and before a 2015 military parade celebrating the 70th anniversary of the World War II victory over Japan.

And there you have it: China's own plunge protection team. With such levels of market interference to prop up companies that are heavily weighted in stock indices, especially state-owned blue chips, you start to wonder where the "market" has gone in all of this.

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