Beijing has stopped the panic in China’s stock markets, but it must do more to convince investors
- Intervention to calm panic is welcome but took too long, coming only after 16 months of intense crackdowns, including on tech giants Tencent and Alibaba
- The rhetoric must now be matched with concrete actions if investors and businessmen at home and abroad are to be reassured
Only on March 16 did Beijing intervene to calm the markets and reassure investors with a promise of a slew of measures after the previous day saw domestic stocks slumping to 21-month lows and Chinese mainland firms listed in Hong Kong to 2008 lows.
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Vice-Premier Liu He, Xi’s most trusted economic adviser, announced the market-friendly measures at a special meeting of the State Council’s Financial Stability and Development Committee, which he chaired.
The measures were carefully worded and targeted to address a range of major concerns about the Chinese economy. They included pledges of “actively” introducing market-friendly policies and “prudently” releasing contractionary measures; calls for “effective risk prevention and mitigating solutions” to deal with a struggling property market; a signal for a possible end to the crackdown on tech companies by urging regulators to complete the rectification of big tech platforms “as soon as possible”, and a vow to hold officials accountable for failing to coordinate with financial regulators over any policy which could impact the capital markets.
The positive rhetoric immediately triggered an impressive stock rally across the board at home and for Chinese companies listed in overseas markets. The announcement may have stopped the bleeding in the stock markets temporarily but it has still left many questions unanswered and many investors unconvinced.
Since then, as the authorities vowed to tame the “irrational expansion of capital” and monopolistic practices of big tech companies, the sweeping regulatory actions have expanded to businesses involved in gaming, off-campus tutoring, delivery, e-commerce, entertainment, social networking providers, real estate, and pharmaceuticals.
For instance, the US Securities and Exchange Commission has for years demanded access to the audit documents of the US-listed Chinese companies – an international practice – but Beijing has stalled, citing national security concerns. The March 16 announcement said the Chinese regulators were working with US counterparts on “a concrete co-operation plan”. But that concession came only after the SEC put in motion plans to kick out Chinese companies listed in the US that did not hand over their audit records.
Following the March 16 announcement, China’s financial regulators acted as if they had suddenly seen the elephant in the room and vowed to tackle the issues vexing investors. On the same day, the Ministry of Finance announced that it would shelve the plan to expand a property tax trial for this year.
In fact, the March 16 measures should have been announced much earlier to improve investor sentiment and stop massive losses. Since late last year, Chinese officials startled by the bearish sentiment have started to murmur about no more policies which risk further hurting markets. Sadly, those murmurs had failed to translate into action until recently.
Among other reasons, China’s much delayed intervention is one more piece of evidence of official lethargy prevailing in the politically charged environment in which officials are asked to strictly toe the party lines and listen to the party leadership. That means even if officials see a crisis looming on the horizon, they are mostly expected to kick the problem upstairs and wait for instructions instead of doing what they are paid to do. By the time the problem reaches the leaders and by the time they make a decision, its severity and magnitude have risen exponentially, which ironically is what makes it serious enough to be worthy of their attention.
The days of ‘keeping quiet while making a fortune’ in China are numbered
While the March 16 announcement was welcome, the rhetoric must be matched with concrete actions to convince investors and businessmen at home and abroad.
According to the announcement, when regulators formulate policies, they must follow the market, legal and international standards and their regulatory actions should be standard, transparent and predictable.
Well, if they had listened to their own advice, they would not be in such a big mess.
Wang Xiangwei is a former editor-in-chief of the South China Morning Post. He is now based in Beijing as editorial adviser to the paper