Volatile summer leads to more intervention in China

Chinese stocks have stabilised since late August due to unprecedented government intervention. The indirect impacts are yet to be seen in the economy, which is worried about. Tightly linked credit, property and equity bubbles heighten the risk of a hard landing in China - albeit such a situation remains a risk scenario.

China's stock and FX market roller coaster rides have dominated the headlines. The stock market has plunged 40% since mid-June and lost nearly USD 3tn in value. In mid-August, the plunge triggered a sell-off in global equity markets, with the major stock indices in the US and Europe dropping by 12% in one week. 

In addition to the stock market turbulence, August was marked by uncertainty in the Chinese currency market. On 11 August the People's Bank of China (PBoC) effectively devalued the CNY by setting the daily fixing rate 1.9% lower versus the USD. 

Officially, it was a liberalisation decision to let the market set the fixing rate, which is now determined by the previous day's closing spot rate. In reality, the PBoC retains control of the currency because it can guide the spot rate towards its desired level by intervening through the large state banks, notes Nordea Bank. 

In fact, hefty intervention was spotted in the weeks following the devaluation to reduce the mounting depreciation pressure.