A very Chinese affair

From Barclays Capital | China's sovereign-wealth fund stepped in Monday to buy shares of the country's battered banks, which have been caught in a selloff that analysts say reflects a broader loss of trust in the integrity of corporate earnings and government statistics.

The skepticism of investors comes as China has become increasingly exposed to global markets, largely through stock listings of its state-owned enterprises and other companies, but more recently through its currency and bonds, which are now traded in Hong Kong.

Analysts say that after years of downplaying risk, some investors now appear fearful that other aspects of China's economy may not be as they seem. They are questioning the credibility of official numbers that show continued rapid growth in one of the last remaining major engines of the global economy.

Pessimism about China's prospects has grown so deep that some investors are betting against not only its stocks but its government debt, which by all accounts is safe. The net value of credit default swaps on Chinese government debt doubled at the end of September from a year earlier, according to data from New York-based Depository Trust & Clearing Corp. 

“People don't trust the government statistics, they don't trust corporate earnings, they don't trust [comments] from government officials,” said Daiwa Securities Ltd. economist Sun Mingchun. Skepticism about Chinese statistics isn't new, and over the years Chinese stocks listed overseas have been hit by periodic bouts of selling as waves of China euphoria turned to anxiety about the government's ability to sustain rapid growth.

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