China's Bubble
Chinese Markets End Volatile Week

True to script, Chinese markets recovered today after a rout triggered an automatic suspension of trading yesterday—just like they did on Tuesday after a similar rout shut down trading Monday. The New York Times:

Stocks opened higher on Friday morning in China, but in the early volatility, a quick sell-off within 30 minutes was followed by another increase by midmorning. Shares continued to rise after lunch, and by the close of trading, the CSI 300 blue-chip index was up about 2 percent. The Shanghai composite index finished nearly 2 percent higher, while the Shenzhen composite index, which had been down as much as 4 percent, ended 1.2 percent higher […]

On Friday morning, the country’s central bank slightly raised the trading range for the renminbi and strengthened the currency, whose depreciation in the preceding three weeks had stoked concerns among investors. It was set at 6.5636 renminbi to the dollar, compared with 6.5646 on Thursday. It remains near its weakest point since early 2011.

The week’s biggest casualty, apart from the value wiped off of global bourses, has been the illusion of Chinese regulatory competence. In a stark admission of defeat, the automatic “circuit breakers,” which halted trading on Monday and Thursday, were removed by Beijing authorities for not achieving “the anticipated outcome.” The climb-down was characterized as “an incredible loss of face,” according to one China market-watcher speaking to the Financial Times. “The government response is a shambles and they have been shown to be completely out of their depth.”

China’s “governed” market model has long been the object of praise from some academics and policymakers around the world. Could 2016 be the year when the system shows its downsides?

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