Ongoing Stock Market Carnage Shows Limits of Beijing’s Power: Analysts

2015-07-28
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Investors look at screens showing stock market movements at a securities company in Beijing, July 28, 2015.
Investors look at screens showing stock market movements at a securities company in Beijing, July 28, 2015.
AFP

China’s share markets continued their downward journey on Tuesday, a day after Shanghai suffered its sharpest one-day losses in eight years, with analysts warning that even the ruling Chinese Communist Party’s powers are limited in the face of the collective appraisal of the country's individual investors.

The renewed falls came in spite of an unprecedented government intervention via state-owned companies and private securities firms to “stabilize prices” by investing in tracker-style funds and heavyweight stocks.

After Monday's heavy losses, the China Securities Regulatory Commission said it would continue to prop up the market via further investment from the state-backed China Securities Finance Corp.

The Shanghai Composite Index closed 1.68 percent down on Monday’s close, after a roller-coaster day that took in falls of up to five percent, while Shenzhen ended the day 2.24 percent lower in spite of the government’s rescue measures.

But small investors, many of whom ploughed their redundancy payments from mass layoffs at state-owned enterprises into the share markets during the 1990s and early 2000s, aren’t convinced by the apparently superhuman intervention by the authorities.

And market analysts say the government may have misjudged the timing of its buying spree.

“China has seen massive falls in share prices in the past, to even lower levels, and even then they didn’t try to save the market using such measures,” Shanghai-based independent economist Chen Lebo told RFA on Tuesday.

“They are more worried about saving the market this time around, but people are worried about these support measures, coming as they do amid extreme political pressure, and that even if they manage to lift the market, about what will happen when they stop,” Chen said.

“Either way, they’ve got to get their money out, so people are still very unsettled, psychologically,” he said, adding that the practice of short-selling, in which traders effectively bet that prices will fall further, isn’t helping.

“No sooner do share prices rise slightly than you get quite a lot of pressure from short-selling,” he said.

Chen said the aftershocks of the government’s enforced buying measures will be felt far beyond the confines of China’s stock markets, because the authorities have called a temporary halt to new listings via initial public offerings, or IPOs.

“China has been pushing innovation, investment, the Internet, and so on, which is another major factor,” he said. “How long will this pause in IPOs go on for? We don’t know. It will throw investment in entrepreneurs into disarray across the board.”

Not a good time

Zhong Dajun, founder of the Beijing Dajun Economic Observation Research Center, said the government hasn’t chosen a good time to step in to save share prices, which means that it can’t now avoid pouring even more funds in to prop up the market.

“My feeling is that the government has intervened a bit too early in the sell-off,” Zhong said. “If they had let it find a bottom, then there wouldn’t be much short-selling to be done, because there’d be no money to be made.”

Zhong said the government chose the wrong territory by intervening between the 3500 and the 4000 mark. “Now they are waging a defensive campaign,” he said.

He said further political pressure will come from the fact that the billions the government is plowing into the market are only benefiting those individuals who invest in the markets, not those who don’t.

But a Nanjing-based individual investor surnamed Lin said the market is still extremely jittery and sensitive to the slightest movement, and that individuals like himself are very wary of government statements.

“Since the sell-off began in mid-June, if you believed everything the government told you, you would have become a sacrificial lamb,” Lin said in an interview on Monday. “I think today’s events have proved that this view is valid.”

“Hundreds of thousands of middle-class investors were wiped out in the last sell-off, but I’m guessing that still more of them will be wiped out in the second,” Lin said.

Meanwhile, a Hubei-based investor surnamed Song said the market was probably inflated to twice its actual value at 4,000 points as a result of government intervention.

“Judging from current trends, the government army is indeed withdrawing, but the share markets have found support because of the enforced measures brought in by the Chinese government,” Song said.

“But this support from different organizations and securities firms is forcing them to take a loss, especially the private securities firms, because individual investors don’t want to lose their original capital.”

Song said he isn’t optimistic about the future, either.

“It’s natural that the market should fall; the rescue measures were only going to prop up the market for a relatively short time, because they relied on government-enforced measures,” he said.

Investor Wang Aizhong said the government’s intervention has shown many individual investors that even government power has its limitations.

“This really is a supernatural government with the power to control the markets; even free markets,” Wang said. “But the way people think and the things they say and do are also powerful.”

Reported by Yang Fan for RFA’s Mandarin Service, and by Ho Shan for the Cantonese Service. Translated and written in English by Luisetta Mudie.

CH. 1: MANDARIN | CANTONESE

CH. 2: VIETNAMESE | BURMESE | KOREAN

CH. 3: KHMER | LAO | UYGHUR

CH. 4: TIBETAN

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