Regarding the deleveraging process in the market, in our view the government started too late & without adequate preparation for the potential downside. We suspect because it didn’t know the true extent of shadow margin financing activities.

That’s BofAML’s take on why Beijing is now throwing the kitchen sink at a Chinese equity market that’s sold off to the tune of 30% in the space of just three weeks, vaporizing $3 trillion in market value in the process.
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A possible trigger for a financial crisis in China. If the market continues to fall sharply, stock lending related losses could run into Rmb trillions, of which, banks and brokers may have to bear a meaningful share. These potential losses can be especially dangerous to brokers whose capital base is less than Rmb1tr. Even more important, the opaqueness of China’s financial system and the lack of clear definition of risk responsibility mean that contagion risk is high, similar to the sub-prime crisis. Read entire post here

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