Stock Market Tumbles, What Does Govt Think?

Liu Shan asks, what does the government think of the plunge in stock prices?

Regarding the slow bull market, people say the securities regulator is responsible for slow, the PBOC for bull. Now the regulators have completed the slow part, but the PBOC hasn't completed the bull part.

Shan says the PBOC can cut the RRR to boost liquidity. It can also push liquidity into the bond market, where short-term corporate bonds are still trading above long-term loan rates:

As the third phase of short-term bonds June 19 traded Chemical Co., Ltd. Shandong Jade year 2015, the rating A-1, duration of 366 days, annual interest rate of 6%. China National Gold Group Corporation 2015 second tranche of medium-term notes, rated AAA, APR 5.29. Look from the bank lending rates, a five-year lending rate to 5.50 percent, more than five years of 5.65%. Compared the two, the high cost of debt financing, bond financing will inevitably suppress traditional industries initiative.

The PBOC can twist too:

In addition, the central bank will take "Operation Twist", improve short-term financing costs, lower long-term yields. Reduce short-term liquidity supply, causing a leveraged effect in the stock market. Stock market crash, the central bank has reached the desired effect.

Now the bank can hike short-term rates and lower long-term rates, creating a bull market in long-term bonds.

iFeng: 第77期：股市暴跌政府在想什么

If China's central bank starts deciding policy based on the stock and bond markets, disaster is guaranteed.