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For those who are excited about China's economic growth, and waiting to shoot the Yanks into oblivion, should just tone down their expectations. In the modern world of finance and commercialization, China is still a newbie, with lots to learn. Here, the Tiongs ran to the US Fed, and old hand at the game seeking advice on what to do after a recent financial scare. Something the Yanks have gotten used to - the ups and downs of the stock market.
Cheers!
http://www.scmp.com/news/china/econ...-us-feds-advice-how-it-handled-87-wall-street
Revealed: China asked for US Fed’s advice on how it handled ’87 Wall Street crash amid turmoil in nation’s stock markets
PUBLISHED : Monday, 21 March, 2016, 1:45pm
UPDATED : Monday, 21 March, 2016, 2:03pm
Confronted with a plunge in its stock markets last year, China’s central bank swiftly reached out to the US Federal Reserve, asking it to share its play book for dealing with Wall Street’s “Black Monday” crash of 1987.
The request came in a July 27 email from a People’s Bank of China official with a subject line: “Your urgent assistance is greatly appreciated!”
The People’s Bank of China New York-based chief representative for the Americas, Song Xiangyan, pointed in the email to a member of staff at the Fed to the day’s 8.5 per cent drop in Chinese stocks and said “my Governor would like to draw from your good experience”.
It is not known whether the Chinese central bank had contacted the Fed to deal with previous incidents of market turmoil. The Chinese central bank and the Fed declined to comment.
Could you please inform us ASAP about the major measures you took at the time
Email from Song Xiangyan, Chinese central bank official
Fed insiders, former Fed employees and economists said there was no official hotline between the Chinese central bank and the US Federal Reserve and that the Chinese were often reluctant to engage at international meetings.
The Chinese market crash triggered steep declines across global financial markets and within a few hours the Fed sent China’s central bank a trove of publicly available documents detailing the US central bank’s actions in 1987.
Fed policymakers started a two-day policy meeting the next day and took note of China’s stock sell-off, according to the meeting’s minutes. Several said a Chinese economic slowdown could weigh on the United States.
Financial market contagion from China was one of the reasons cited by the Fed in September when it put off a rate increase that many analysts had expected, a sign of how important China has become as an industrial powerhouse and as a financial market.
The Federal Reserve building in Washington. Fed officials told China how it helped with the 1987 Wall Street crash. Photo: Reuters
The messages, obtained through a Freedom of Information Act request, show how alarmed Beijing has become over the deepening financial turmoil and offer a rare insight into one of the least understood major central banks.
The exchanges also show that while the two central banks have a collegial relationship, they might not share secrets even during a crisis.
“Could you please inform us ASAP about the major measures you took at the time,” Song asked the director of the Fed’s international finance division, Steven Kamin in the July 27 email.
The message registered in Kamin’s account just after 11 am in Washington. Kamin quickly replied from his Blackberry: “We’ll try to get you something soon.”
China’s painful stock market lesson a golden opportunity to push reform
What followed five hours later was a 259-word summary of how the Fed worked to calm markets and prevent a recession after the S&P 500 stock index tumbled 20 per cent on October 19, 1987.
Kamin also sent notes to guide Chinese central bank officials through the many dozens of pages of Fed transcripts, statements and reports that were attached to the email.
All of the attached documents had long been available on the Fed’s website and it is unclear if they played a role in shaping Beijing’s actions.
Kamin’s documents detail how the Fed began issuing statements the day after the market crash, known as Black Monday, pledging to supply markets with plenty of cash so they could function.
By the time Song wrote to Kamin, China had spent a month fighting a stock market slide and many of the actions taken by the central bank and other Chinese authorities shared the contours of the Fed’s 1987 game plan.
The July 27 plunge in the Shanghai Composite Index was the biggest one-day fall since 2007 and by then the market had lost nearly a third of its value over six weeks.
China’s central bank had already cut interest rates on June 27 in similar fashion to the Fed’s swift move to ease short term rates in 1987.
China’s stock market crash may only delay policy reforms, not economic growth
Song told Kamin the Chinese central bank was particularly interested in the details of the Fed’s use of repurchase agreements to temporarily inject cash into the US banking system in 1987.
The central bank had increased cash injections in June and ramped up repurchase agreements in August as stocks continued to slide. It also eased policy on August 11 by allowing a 2 per cent devaluation in the yuan currency.
As Song and Kamin exchanged messages on July 27 and 28, other Chinese authorities were busy trying to contain the crash.
China’s securities regulator said on July 27 it was prepared to buy shares to stabilise the stock market and that the authorities would deal severely with anyone making “malicious” bets that stocks would fall.
The Fed contacted banks directly in 1987 and encouraged them to meet “legitimate funding needs” of their customers, according to Kamin’s email to Song.
In addition to its pledges and cajoling, the US central bank in 1987 eased collateral restrictions on Wall Street and tried to calm markets by intervening in trading earlier than normal. The US economy continued to grow, eventually entering recession in 1990.
The central bank in Beijing does not have as free a hand to conduct policy as does the Fed, which answers to the US Congress but operates independently from the administration.
The central bank governor Zhou Xiaochuan implements policies ultimately decided by political leaders in Beijing and lacks the authority to lead debate or shed light on decisionmaking.
China’s vice finance minister said last year Chinese supervisors needed to learn from countries like the United States.
Premier Li Keqiang also said last month China’s regulators did not respond sufficiently, but China had fended off systemic risks.
Why China should just let the stock market crash
US central bankers say their relative transparency helps their effectiveness and legitimacy, but laws on open records also make Fed officials cautious about their communications, much of which must be made public when requested.
Fed Vice Chairman Stanley Fischer has said transparency makes it harder for policymakers to have informal discussions.
Kamin pointed out in his email that everything he was sending was publicly available.
“I hope this is helpful,” he said.
Cheers!
http://www.scmp.com/news/china/econ...-us-feds-advice-how-it-handled-87-wall-street
Revealed: China asked for US Fed’s advice on how it handled ’87 Wall Street crash amid turmoil in nation’s stock markets
PUBLISHED : Monday, 21 March, 2016, 1:45pm
UPDATED : Monday, 21 March, 2016, 2:03pm
Confronted with a plunge in its stock markets last year, China’s central bank swiftly reached out to the US Federal Reserve, asking it to share its play book for dealing with Wall Street’s “Black Monday” crash of 1987.
The request came in a July 27 email from a People’s Bank of China official with a subject line: “Your urgent assistance is greatly appreciated!”
The People’s Bank of China New York-based chief representative for the Americas, Song Xiangyan, pointed in the email to a member of staff at the Fed to the day’s 8.5 per cent drop in Chinese stocks and said “my Governor would like to draw from your good experience”.
It is not known whether the Chinese central bank had contacted the Fed to deal with previous incidents of market turmoil. The Chinese central bank and the Fed declined to comment.
Could you please inform us ASAP about the major measures you took at the time
Email from Song Xiangyan, Chinese central bank official
Fed insiders, former Fed employees and economists said there was no official hotline between the Chinese central bank and the US Federal Reserve and that the Chinese were often reluctant to engage at international meetings.
The Chinese market crash triggered steep declines across global financial markets and within a few hours the Fed sent China’s central bank a trove of publicly available documents detailing the US central bank’s actions in 1987.
Fed policymakers started a two-day policy meeting the next day and took note of China’s stock sell-off, according to the meeting’s minutes. Several said a Chinese economic slowdown could weigh on the United States.
Financial market contagion from China was one of the reasons cited by the Fed in September when it put off a rate increase that many analysts had expected, a sign of how important China has become as an industrial powerhouse and as a financial market.
The Federal Reserve building in Washington. Fed officials told China how it helped with the 1987 Wall Street crash. Photo: Reuters
The messages, obtained through a Freedom of Information Act request, show how alarmed Beijing has become over the deepening financial turmoil and offer a rare insight into one of the least understood major central banks.
The exchanges also show that while the two central banks have a collegial relationship, they might not share secrets even during a crisis.
“Could you please inform us ASAP about the major measures you took at the time,” Song asked the director of the Fed’s international finance division, Steven Kamin in the July 27 email.
The message registered in Kamin’s account just after 11 am in Washington. Kamin quickly replied from his Blackberry: “We’ll try to get you something soon.”
China’s painful stock market lesson a golden opportunity to push reform
What followed five hours later was a 259-word summary of how the Fed worked to calm markets and prevent a recession after the S&P 500 stock index tumbled 20 per cent on October 19, 1987.
Kamin also sent notes to guide Chinese central bank officials through the many dozens of pages of Fed transcripts, statements and reports that were attached to the email.
All of the attached documents had long been available on the Fed’s website and it is unclear if they played a role in shaping Beijing’s actions.
Kamin’s documents detail how the Fed began issuing statements the day after the market crash, known as Black Monday, pledging to supply markets with plenty of cash so they could function.
By the time Song wrote to Kamin, China had spent a month fighting a stock market slide and many of the actions taken by the central bank and other Chinese authorities shared the contours of the Fed’s 1987 game plan.
The July 27 plunge in the Shanghai Composite Index was the biggest one-day fall since 2007 and by then the market had lost nearly a third of its value over six weeks.
China’s central bank had already cut interest rates on June 27 in similar fashion to the Fed’s swift move to ease short term rates in 1987.
China’s stock market crash may only delay policy reforms, not economic growth
Song told Kamin the Chinese central bank was particularly interested in the details of the Fed’s use of repurchase agreements to temporarily inject cash into the US banking system in 1987.
The central bank had increased cash injections in June and ramped up repurchase agreements in August as stocks continued to slide. It also eased policy on August 11 by allowing a 2 per cent devaluation in the yuan currency.
As Song and Kamin exchanged messages on July 27 and 28, other Chinese authorities were busy trying to contain the crash.
China’s securities regulator said on July 27 it was prepared to buy shares to stabilise the stock market and that the authorities would deal severely with anyone making “malicious” bets that stocks would fall.
The Fed contacted banks directly in 1987 and encouraged them to meet “legitimate funding needs” of their customers, according to Kamin’s email to Song.
In addition to its pledges and cajoling, the US central bank in 1987 eased collateral restrictions on Wall Street and tried to calm markets by intervening in trading earlier than normal. The US economy continued to grow, eventually entering recession in 1990.
The central bank in Beijing does not have as free a hand to conduct policy as does the Fed, which answers to the US Congress but operates independently from the administration.
The central bank governor Zhou Xiaochuan implements policies ultimately decided by political leaders in Beijing and lacks the authority to lead debate or shed light on decisionmaking.
China’s vice finance minister said last year Chinese supervisors needed to learn from countries like the United States.
Premier Li Keqiang also said last month China’s regulators did not respond sufficiently, but China had fended off systemic risks.
Why China should just let the stock market crash
US central bankers say their relative transparency helps their effectiveness and legitimacy, but laws on open records also make Fed officials cautious about their communications, much of which must be made public when requested.
Fed Vice Chairman Stanley Fischer has said transparency makes it harder for policymakers to have informal discussions.
Kamin pointed out in his email that everything he was sending was publicly available.
“I hope this is helpful,” he said.
