- China’s recent actions contradict President Xi Jinping’s vow to let markets play a decisive role in resource allocation. The People’s Bank of China has adopted “yield curve control” and is borrowing government bonds to drive up long-term yields. However, short selling in the stock market is restricted. These actions risk discouraging investor participation. [27 Jul 2024]
Among the steps taken recently by China’s central bank is a new initiative to borrow government bonds from banks—the biggest holders of those securities—and sell them in the market in order to avoid drive up longer-term yields.
In other words, shorting—just what hedge fund luminary George Soros did against the pound in the early 1990s. And what Michael Burry did against mortgage bonds before the financial crisis.
Ironically, Chinese regulators this month also have taken new action in the stock market to restrict—yes, you guessed it—short selling. That’s against a backdrop in which China’s benchmark CSI 300 stock-market index is as of today almost 12% below where it was five years ago.
So, shorting bonds is OK for the central bank because their prices are too high. But shorting stocks is not OK for private investors because their prices are too low.
Bankwatch 