China is engineering yet another mini-boom. Credit is picking up again. The Communist Party has helpfully outlawed falling equity prices.

Yet the underlying picture in China is going from bad to worse. Robin Brooks at Goldman Sachs estimates that capital outflows topped $224bn in the second quarter, a level "beyond anything seen historically".

The Chinese central bank (PBOC) is being forced to run down the country's foreign reserves to defend the yuan. This intervention is becoming chronic. The volume is rising. Mr Brooks calculates that the authorities sold $48bn of bonds between March and June.

Charles Dumas at Lombard Street Research says capital outflows - when will we start calling it capital flight? - have reached $800bn over the past year. These are frighteningly large sums of money.

China's bond sales automatically entail monetary tightening. What we are seeing is the mirror image of the boom years, when the PBOC was accumulating $4 trillion of reserves in order to hold down the yuan, adding extra stimulus to an economy that was already overheating.

The squeeze earlier this year came at the worst moment, just as the country was struggling to emerge from recession. I use the term recession advisedly. Looking back, we may conclude that the world economy came within a whisker of stalling in the first half of 2015.

The Dutch CPB's world trade index shows that shipping volumes contracted by 1.2pc in May, and have been negative in four of the past five months. This is extremely rare. It would usually imply a global recession under the World Bank's definition.

The epicentre of this crunch has clearly been in China, with cascade effects through Russia, Brazil and the commodity nexus.

Chinese industry ground to a halt earlier this year. Electricity use fell. Rail freight dropped at near double-digit rates. What had begun as a deliberate policy by Beijing to rein in excess credit escaped control, escalating into a vicious balance-sheet purge.

The Chinese authorities have tried to counter the slowdown by talking up an irresponsible stock market boom in the state-controlled media. This has been a fiasco of the first order.

The equity surge had no discernable effect on GDP growth, and probably diverted spending away from the real economy. The $4 trillion crash that followed has exposed the true reflexes of President Xi Jinping.

Half the shares traded in Shanghai and Shenzhen were suspended. New floats were halted. Some 300 corporate bosses were strong-armed into buying back their own shares. Police state tactics were used hunt down short sellers.

We know from a vivid account in Caixin magazine that China's top brokers were shut in a room and ordered to hand over money for an orchestrated buying blitz. A target of 4,500 was set for the Shanghai Composite by Communist Party officials.

Caixin says the China Securities Finance Corporation - a branch of the regulator - now owns an estimated $200bn of Chinese stocks and has authority to buy a further $500bn if necessary to prop up the market.

This use of "brute force" - in the words of Peking University professor Michael Pettis - has done the trick. Equities have recovered. How could they not do so, since selling was illegal, and not to buy was also illegal?

Yet it is hard to see what remains of Xi Jinping's pledge at the Communist Party's Third Plenum in 2013 to let market forces play the "decisive role" in the economy. There was always a contradiction in this pledge. Mr Xi was touting free enterprise, even as he tightened control on the internet, academia and political dissent.

David Fuller's view

Here is Ambrose Evans-Pritchard's article.

There is no stock market free of political intervention, for better or worse.  Fortunately, government / central bank intervention is almost always intended to help or protect the economy, clear examples being interest rate cuts and quantitative easing.  These also help the investor. 

Interest rate increases do not help the investor, at least not in the short to medium term, although they are intended to curb economic overheating and inflationary pressures which are not in the long-term interests of investors. 

President Xi Jinping appears to have taken stock market intervention to new levels.  He may be a quick learner but communist ideology, including a command economy, is not the best background for long-term economic growth and stock market appreciation.

I assume, Xi Jinping has seen and also agrees with the World Bank and China’s Development Research Centre report of three years ago, calling for a market revolution to sustain China’s economic growth at a more developed level.  Here are the two most crucial paragraphs on this point from the article above:

Either China breaks its dependence on export-led growth and imported know-how or it will drift into the "middle income trap" awaiting all catch-up countries that fail to reform in time, and to make this fundamental break it must relinquish political control over the economy and let a hundred flowers bloom.

"The role of the private sector is critical because innovation at the technology frontier is quite different in nature from catching up. It is not something that can be achieved through government planning," it said.

In his concluding three paragraphs, Ambrose Evans-Pritchard mentions China’s current “sugar rush of fresh credit.”  He points out that this is now helping the economy and that “the great scare of early 2015 appears to be over.”  I hope so.