China really, really doesn't want people talking about its economic woes. The FT:
In a directive written last week and transmitted over the past few days to newspapers and television stations, local propaganda departments of the Communist party instructed reporters to stop “hyping the so-called cash crunch” and to spread the message that the country’s markets are well stocked with money.
Clearly there's no better way to get reporters talking about something than telling them not to, so here's a quick primer on the country's cash crunch.
Two weeks ago, money market rates in China rose rapidly to double digits, causing interbank lending to freeze up; the scene was alarmingly reminiscent of the Western credit crunch, and many feared that the country was about to have its own Lehman moment.
Fears were stoked by the central bank's refusal to intervene, apparently influenced by a political desire to "correct" the bank's behaviour. A scheduled auction the day after the rate spike would have provided the perfect opportunity to inject extra cash into the economy, but nothing happened.
Eventually, Beijing capitulated, and, on 25 June, committed to bailing out any and all failing banks, ensuring, at least for now, that the market interest rates will decline rapidly. That's not a long-term solution – that would involve boosting the liquidity of Chinese banks such that they aren't at risk of collapsing in the first place – but it preserves the banking system for the time being.
Still, the stock market did not respond happily to the turmoil. Falling ten per cent over a week, it dropped a further six per cent on the day the central bank promised action, although the announcement reversed the trend and it clawed back most of that day's losses. That seems to be the motivation for the media blackout, one of the first in the country to be targeted at the financial press. The FT reports some of the contents of the directive:
First, we must avoid malicious hype. Media should report and explain that our markets are guaranteed to have sufficient liquidity, and that our monetary policy is steady, not tight.
Second, media must strengthen their positive reporting. They should fully report the positive aspect of our current economic situation, bolstering the market’s confidence.
Third, media must positively guide public opinion. They should promptly and accurately explain in a positive manner the measures taken by and information from the central bank.
Translation: if anyone does a Robert Peston, heads will roll.