The Gray Rhino Rattles Chinese Stocks

In front-page commentary published July 17th, 2017, 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’ ?ang ?e d?a th? tr??ng Trung Qu?c VNExpress (Vietnam)
        Piyasan?n 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

People’s Daily Reference to the Gray Rhino -What Is It? jrj.com (Chinese Simplified Characters), July 19, 2017

China Ignores Gray Rhino Threats to its Economy at its Own Peril Andrew Sheng, South China Morning Post, July 21, 2017

Keeping Financial Risks at Bay, China Daily, July 20, 2017

Gray Rhinos, Game of Thrones, and TV’s Golden Age People & Profit, France24, July 21, 2017

 

BusinessWorld Review: Stay Alert, Act In Time

Elton Sayward reviews THE GRAY RHINO in the December 26, 2016 issue of BusinessWorld, calling it “a must read for the C-Level suite, start-ups and anyone that has been trampled by a gray rhino.”

He applies the framework to his own memories in military situations: “As a US Naval Officer, I saw this first hand on the bridge of ships as officers would delay making a course correction in an obvious close crossing situation with another ship. Officers would have the data at hand from 2-3 different radar sources as well as visually from lookouts, but hesitated to make the call to the Captain to recommend a course change. The fear of looking foolish, making a wrong recommendation, not having the correct information would all play on the officer’s better judgment to take action. This invariably would end up with the officer looking reckless and the Captain coming to the bridge and making the needed course changes in a more complex and urgent situation.”

READ THE FULL REVIEW HERE.

The Gray Rhino on The Exchange

I sat down with Reuters Breakingviews US Editor Jeffrey Goldfarb for a conversation on The Exchange about why it’s more important to look for gray rhinos than black swans and how to keep from getting trampled. The interview aired June 23, 2016. Click the image below to view the video.

With Reuters Breakingviews US Editor Jeffrey Goldfarb on The Exchange
With Reuters Breakingviews US Editor Jeffrey Goldfarb on The Exchange

 

The Gray Rhino on WGN-TV Midday Fix

I had a great time talking about THE GRAY RHINO with Steve Sanders on WGN TV’s Midday Fix June 6, 2017. We covered a range of gray rhinos, from Chicago’s finances to the 2008 financial crisis to climate change to the things we ignore in our personal lives.

Watch by clicking on the image below:

Screen Shot 2016-06-06 at 3.56.13 PM