In front-page commentary published July 17th, People’s Daily, the official newspaper of China’s Communist Party, warned of the need to avert highly obvious “gray rhino” risks as well as rare and unpredictable “black swans.” The commentary rocked China’s stock markets and signaled a new policy direction intended to more aggressively address obvious financial risks.
The article said that China should “strictly prevent risks from liquidity, credit, shadow banking and abnormal capital market fluctuations, as well as insurance market and property bubbles.”
Taking the commentary as a sign that regulators would crack down on speculation, investors immediately dumped small-cap stocks, seen as more likely to carry debt that could become unmanageable. “China’s small-cap Shenzhen index plunged 4.3% on Monday. The ChiNext, which focuses on high-tech companies, plummeted 5.1% and closed at its lowest point since early 2015,” noted CNN Money.
The timing of the People’s Daily article was particularly telling, immediately following last week’s National Financial Work Conference, a key policy strategy session that occurs every five years. This year the conference created a “super-regulator,” intended to improve the country’s ability to tackle a financial crisis, that merged four existing supervisory watchdog. It also strengthened the central bank’s powers.
A few hours after the People’s Daily article appeared, new data showed the Chinese economy re-accelerating.
The Chinese government’s embrace of the gray rhino language generated widespread media coverage.
“The unusual zoological turn of phrase in the Party’s language could… hint at a genuine effort to re-energize its long-drawn-out regulatory clampdown,” Sunny Oh wrote for Marketwatch.
Similarly, ZeroHedge noted, “[I]n a surprising case of forward-looking prudence, the Chinese government is doing what numerous Fed members have also done in recent weeks, by setting a surprisingly wary tone about risk, demonstrated best by the front page commentary in the People’s Daily.”
Former Dallas Fed chief Richard Fisher referred to gray rhino risks on Squawk on the Street Monday.
Here’s some other notable coverage:
What’s a ‘gray rhino’ and Why Did It Cause Chinese Stocks to Drop? CNN Money, July 17, 2017
¿Por qué un ‘rinoceronte gris’ causó la caída de las acciones en China?
‘Tê giác xám’ đang đe dọa thị trường Trung Quốc VNExpress (Vietnam)
Piyasanın yeni korkusu: Gri gergedan BusinessHT (Turkey)
China’s Economy Charges On as Officials Target the Risk ‘Rhino’ Bloomberg News, July 17, 2017
China economy charges on as leaders target the risk `Rhino’ The Peninsula (Qatar), July 18, 2017
Why China Fears “Gray Rhino” Risk to Fragile Financial System Marketwatch, July 17, 2017
When a ‘Black Swan’ Will No Longer Do ZeroHedge, July 17, 2017
Xi’s Risk-off Push Ripples Through China as Transition Nears Bloomberg News, July 18, 2017
China Sentences to Ponder, Gray Rhino Edition Marginal Revolution, July 18, 2017
Beijing Watches Out for “Grey Rhino” and “Black Swan” in Jungle of Financial Risks South China Morning Post, July 19, 2017
(比黑天鹅更可怕 人民日报提到的“灰犀牛”究竟是啥) People’s Daily Reference to the Gray Rhino -What Is It? jrj.com (Chinese Simplified Characters), July 19, 2017