In remarks to the G20 finance ministers, Zhou Xiaochuan, governor of China’s central bank says China Stock Market Correction ‘Mostly Over’.

In remarks at the G20 in Turkey, the People’s Bank of China quoted Mr Zhou as saying: “At present, the exchange rate of the renminbi against the dollar is stabilising, the correction in the stock market is already mostly over and the financial markets show hope for stabilising.”

Mr Zhou acknowledged that “before June, the Chinese stock market bubble grew continuously”, but added that of the three major corrections since June, only the most recent in mid-August had a global impact. Chinese government action had prevented further slides and systemic risks, he added.

“Following the correction, levels of leverage are clearly lower and there has been no notable effect on the real economy,” he added.

The PBoC issued its paraphrased transcript of Mr Zhou’s remarks only after Taro Aso, Japanese finance minister, told reporters that Mr Zhou had three times used the term “burst” referring to the stock market bubble. The Chinese transcript uses the more decorous term “correction”, and refers to a “bubble” only once.

Words for Us and Words for Them

Apparently it’s OK for central bank officials to use the word bubble even though others have been forced to make public confessions for using “emotionally charged” words.

The media was ordered not to use words such as slump, spike, plunge, and collapse. Analysts were instructed “Do not conduct in-depth analysis, and do not speculate on or assess the direction of the market.

Following a witch hunt, one poor soul was forced to make a public confession for saying the wrong things.

For more details, see my post Witch Hunt Victim “Confesses”: Word Police in China vs. Word Police in US.

Shanghai Stock Index Daily

Normally the word “correction” means a slide of over 10% but less than 20%. Anything greater is called a “bear market”.

From 5178.19 to 2850.71 is a plunge of 44.94%. The index is still down 38.97%.

Correction Over?

Zhou says the correction is “mostly” over?

Is that in terms of time or price or both? Regardless, how could Zhou possibly know?

A weekly chart provides a better perspective.

Shanghai Stock Index Weekly

Chartwise, the rise still has that bubble look.

And if the market takes off another thousand points or so, it will be back where it started.

Since the index is down about 2000 points now, I guess one could say “mostly” over, even if the target is a complete round trip.

Mike “Mish” Shedlock