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China BriefingFrom Ant to Didi and private education firms, China stock rout is a mess of its own making
- Sudden clampdowns on tech and tutoring firms, announced with little to no warning or explanation, have spooked investors and sparked sharp sell-offs
- Chinese leaders should publicly communicate rationale, pay attention to market sentiment and give professionals latitude to get ahead of issues of global impact
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It seemed not long ago that China’s stock markets in Shanghai and Shenzhen were very much out of step with the global markets, mostly governed by the top-down approach of heavy-handed government intervention.
Chinese retail and institutional investors had long been resigned to the not-so-secret arm twisting and ministerial diktats that often came out of the blue and caused wild market swings, whereas foreign investors looked on in bemusement.
But circumstances have changed greatly since China’s economy became the second largest in the world, and Beijing promised to allow the market to play a “decisive” role in the economy. Now the central government’s political or economic decisions often carry global implications, particularly as overseas investors can buy Chinese stocks – not only through the qualified foreign institutional investor programme and schemes such as Shanghai-Hong Kong stock connect, but also through hundreds of China-based companies listed in Hong Kong, New York, London and elsewhere.
Old habits die hard, and China’s secretive politics and utter failure to publicly and clearly explain policies that impact stock markets worldwide may not only cost investors billions of US dollars in losses, they will more importantly raise doubts about the country’s capital markets and its overall intention of opening up.
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