Messages to US Federal Reserve reveal China’s market alarm

Confronted with a plunge in its stock markets last year, China’s central bank swiftly reached out to the US Federal Reserve, asking it to share its playbook 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 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% drop in Chinese stocks and said “my Governor would like to draw from your good experience”.

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 selloff, according to 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 a Freedom of Information Act request, show how alarmed Beijing has become over the deepening financial turmoil and offer a rare insight into one of the least understood major central banks.

The exchanges also show that, while the central banks have a collegial relationship, they might not share secrets even during a crisis.