Washington: Confronted with a plunge in its stock markets in 2015, China’s central bank swiftly reached out to the US Federal Reserve, asking it to share its play book for dealing with Wall Street’s “Black Monday” crash of 1987.
The request came in a July 27 email from a People’s Bank of China (PBoC) official with a subject line: “Your urgent assistance is greatly appreciated!”
In a message to a senior Fed staffer, the PBoC’s New York-based chief representative for the Americas, Song Xiangyan, pointed to the day’s 8.5 per cent drop in Chinese stocks and said “my governor would like to draw from your good experience.”
It is not known whether the PBoC had contacted the Fed to deal with previous incidents of market turmoil. The Chinese central bank and the Fed had no comment when reached by Reuters. The Chinese market crash triggered steep declines across global financial markets and within a few hours the Fed sent China’s central bank a trove of publicly-available documents detailing the US central bank’s actions in 1987.
Fed policymakers started a two-day policy meeting the next day and took note of China’s stock sell-off, according the meeting’s minutes. Several said a Chinese economic slowdown could weigh on America. Financial market contagion from China was one of the reasons cited by the Fed in September when it put off a rate hike that many analysts had expected, a sign of how important China has become both as an industrial powerhouse and as a financial market.
The messages, which Reuters obtained through an Freedom of Information Act request, show how alarmed Beijing has become over the deepening financial turmoil. “Could you please inform us ASAP about the major measures you took at the time,” Mr Song asked the director of the Fed’s international finan-ce division, Steven Kamin in the July 27 email.
Mr Kamin quickly replied from his Blackberry: “We’ll try to get you something soon.” What followed five hours later was a 259-word summary of how the Fed worked to calm markets and prevent a recession after the S&P 500 stock index tumbled 20 per cent on October 19, 1987. He also sent notes to guide PBoC officials through the many dozens of pages of Fed transcripts. All of the attached documents had long been available on the Fed’s website and it is unclear if they played a role in shaping Beijing’s actions.
