Now it’s embarrassing.
Chinese officials watched a near 6% surge in Mainland equities evaporate on Monday, in yet another testament to just how skeptical market participants really are about Beijing’s capacity to engineer a durable rally and turn things around for the struggling economy.
Over the weekend, authorities slashed a key levy on stock trades and unveiled new restrictions on selling applicable to “major” shareholders for companies trading below their IPO level or book value. Those rules also include stipulations tied to dividends. On Monday, mutual funds were again instructed to avoid being net sellers. Beijing also acted on the supply side of the market, curbing IPOs and secondaries.
All of that in a desperate bid to inject some adrenaline or, as the CSRC put it, “to activate the capital markets.” Alas, it didn’t work. Or, it did initially, but investors used the opening rally as an emergency exit door.
The open was the high. It was all downhill from there. And not in a good way.
The “restrictions” (if you’re feeling less generous, you could just call it a ban) are expected to prevent CNY250 billion of funds from selling. Suffice to say some investors sold anyway on Monday, among them global funds, who dumped another $1 billion of A-shares through the links.
As a reminder, August is set to be a record month of overseas selling. Beijing is trying to offset that by preventing domestic funds from trimming positions and instructing a hodgepodge of local investors to buy. It’s not working. And the reason is simple: The Chinese economy is facing recession and market participants want to know how the Party intends to address that. Propping up the stock market with coercion (and that’s all this is in China) hardly counts as a solution.
That’s not to suggest coercion isn’t effective, particularly when backed up with credible threats of physical violence (as it is in Xi’s China). It’s just to say the problem is too big and too amorphous for that. You can prevent domestic investors from selling stocks, but you can’t compel an $18 trillion economy to grow by threatening to take a baseball bat to its knees. And even if you could, it’s your economy. Those are your knees.
Meanwhile, Gina Raimondo is in Beijing as part of yet another high-level US diplomatic overture. I’ll save you some time. Raimondo offered the same set of familiar talking points. “It is profoundly important that we have a stable economic relationship, which is to the benefit of both of our countries and in fact what the world expects of us,” she said. “We will of course disagree on certain issues, but I believe that we can make progress if we are direct, open and practical.”
To some degree, all in with Putin shifted the dynamics of Chinese trade relations and taxed their economies.
Both leaders have a worldview that is actually very racist. If either empire ever pissed on a piece of dirt somewhere and left a genetic footprint it is theirs always.
Political paternalism will not feed the world.
Both of these former empires have had their own mass starvations due to these very same policies.
No sympathy here for Xi. He makes his own bed. But he is in charge, and prefers to destroy better possibilities for his people and country by expanding his levels of control. It’s a very sad time for China. One now has to wonder what consequences will he provoke, either within his country or beyond China’s borders?
I saw a Bloomberg article opining that Xi is running China’s economy “cold on purpose” and that investors are underestimating his determination to avoid large-scale debt-fueled stimulus. At the same time, I see no sign of similar determination to shift wealth/control from government and SoEs to Chinese consumer/entrepreneurs. This would, I think, raise the risk of an extended period of weak Chinese growth. I’m also reading that in nominal terms, US GDP is currently outgrowing China GDP. Not promising for Chinese equities.