HONG KONG (Reuters Breakingviews) – China’s financial regulators have stepped back up to the market microphone. With indexes plumbing historic lows, Vice Premier Liu He finally told investors what they wanted to hear: that Beijing is moving to rein in the endless crackdowns that have made life hell for shareholders in local listed companies. In reaction, Chinese equities logged an extraordinary relief rally on Wednesday; technology giants in New York and Hong Kong posted double-digit gains.
The collapse of Chinese share values this year has been extreme; at Tuesday’s close the worst-performing major exchanges in the world after Russia were in China. The war in Ukraine is one factor, but more damage has been done by bureaucrats pushing social and security agendas at the expense of private companies, ranging from education to video games to streaming video. The central bank basically cancelled the peer-to-peer lending industry; the country’s cabinet forcibly converted after-school tutoring services to non-profits last year, apparently on worries education expenses were holding down the birth rate. Both had previously been investor favourites.
Some agencies have encroached on ground once reserved for securities regulators. The Cyberspace Administration of China, for example, once focused on censoring content and fighting internet addiction, now gets to effectively veto some overseas listings. Just days after Didi Global’s New York debut, the regulator announced a cybersecurity review into the ride-hailing group and ordered its local apps to suspend new user registrations. The stock has since cratered nearly 90%. A similar probe at U.S.-listed job recruitment site Boss Zhipin cost the company 17 million users in four months, executives recently said.
Investors were already worried about economic momentum, especially Beijing’s campaign to deleverage the real estate sector, which drives up to one-third of GDP. Yet the central government did little to assuage shareholder anxieties until Liu’s Wednesday speech, in which he not only promised to improve bureaucratic coordination and support markets, but also to work with U.S. regulators threatening to delist Chinese companies trading in New York.
Liu is powerful but he faces factions who have little empathy for capitalists and are fanatically opposed to any cooperation with Americans. Some outrank him. “Coordinating” could be interpreted as “notifying”, not asking permission. The dramatic relief rally shows how much the market wants Liu to deliver. He’s got his work cut out.
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– Stocks in China and Hong Kong rallied on March 16 after Vice Premier Liu He said Beijing will roll out more measures to boost the Chinese economy as well as favourable policy steps for capital markets. He made the comments in a meeting described in state media.
– The benchmark CSI300 Index closed up 4%, while the Hang Seng Index surged 9%. The Hang Seng Tech Index gained 22%.
(Editing Antony Currie and Katrina Hamlin)
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