In August, we learned that even spending CNY1 trillion in plunge protection to prop up an equity market reeling from the unwind of a bevy of backdoor margin lending channels was woefully insufficient. The reason (or one of the reasons): the millions of semi-literate retail investors, housewives, and farmers that had poured money into the market and had previously been inclined to buy every last dip were suddenly selling every last rip in a desperate attempt to recoup their savings which had just been vaporized before their very eyes. 

Ultimately, once Beijing had tried halting three quarters of the market and then throwing more than a trillion yuan at the “problem”, Chinese authorities just started arresting people. First short-sellers, then brokers, then journalists, and finally, just plain old sellers. 

True, that’s not good for China’s international reputation from a kind of human rights/freedom of speech perspective, but when it comes to showing the world that you’re committed to liberalizing capital markets, it sure beats effectively nationalizing a whole collection of equities and halting 75% of trading. Not to mention the fact that when you’re trying to execute a “controlled” currency deval on your own terms and there’s already quite a bit of downward pressure, it’s not entirely clear that you want to be printing too many more trillions of yuan. 

Of course even though China may have succeeded in “arresting” some of the pressure with its “kill the chicken to scare the monkey” witch hunt and thereby might possibly have avoided having to dump still more money into buying shares, to a certain extent the reputational damage was done from June-July when CSRC bought some CNY900 billion in shares. As we’ve put it before, that falls outside the bounds of manipulated market decorum even in a world that’s used to central banks providing plunge protection.