Beijing’s vote to stabilize the market has worked … for now

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Beijing’s vote to stabilize the market has worked … for now

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An unexpected promise from top officials in Beijing this week to support the economy sent Asian stocks up after days of nervousness over the coronavirus rebound in China, the war in Ukraine and an uncertain housing market.

It has been seen as a sign of Chinese business planners who have recognized anxiety over burning issues from technology and real estate to overseas listings.

But the reassuring words – spoken after a meeting chaired by Deputy Prime Minister Liu He – have yet to be accompanied by tough political decisions.

So what does all of this mean?

What did China say and why?

Leading financial leaders on Wednesday said they will maintain “capital market stability,” support overseas IPOs, and reduce risks involving struggling real estate developers whose debt-repaying problems have threatened to destabilize the economy. .

Their meeting called for “good-for-the-markets” policies, indirect but instructive language about government concerns that sent stocks, particularly tech stocks, up in Hong Kong.

The comments come as China’s annual growth target of around 5.5% – the lowest in decades – was challenged by the resurgence of the coronavirus, property collapse and global uncertainty following the invasion. of Ukraine.

Recovery for technology?

The announcement was music to the ears of investors in Chinese tech companies, which had been flayed for more than a year by a state crackdown on the industry.

Regulators have targeted everything from market size to data usage, swinging share prices, eliminating billions of corporate valuations and stifling IPOs outside of China.

Scrutiny has hit some of the biggest names in the country, including Alibaba and Tencent, pushing the once proud billionaire tech deans into the shadows.

The latest guidance, which called for “more predictable regulation” of the tech sector, suggests that some parts of the government are willing to signal more clearly before policy changes.

“It is noteworthy, very remarkable, that Liu He himself would feel the need to intervene,” Kendra Schaefer, head of technology policy research at consulting firm Trivium, told AFP, anticipating “a more measured approach to reform and to regulation “.

However, he warned that scrutiny of the tech giants – who dominate everything from shopping to car travel – and how they use public data “isn’t disappearing.”

And what about the real estate sector?

China’s heavily indebted real estate sector collapsed under rules dubbed the “three red lines,” which aimed at leverage ratios to reduce the risk of corporate bankruptcy.

The rules have challenged developer patterns of debt-driven endless expansion, and large corporations have been pushed to the brink of collapse.

Wednesday’s statement offered comfort to the damaged sector, experts said.

“An important signal came from the Ministry of Finance, which indicated that there are no plans to expand the property tax reform processes,” said Rajiv Biswas, chief Asia-Pacific economist at IHS Markit.

But the statement did not indicate a change to the “three red lines” policy nor did it offer hope of government bailouts for affected companies.

“The government is unlikely to provide any large-scale support for the benefit of struggling developers,” said Leonard Law, senior credit analyst at Lucror Analytics, although “the emphasis on stability can help stem the downward spiral.”

What about US listings now?

Beijing has launched safety probes on several US-listed Chinese companies after a controversial IPO in New York by public transport giant Didi Chuxing went ahead last year despite warnings from supervisory authorities.

The dim view of US stock prices came as relations between Washington and Beijing sank to the nadir.

The meeting on Wednesday said regulators in China and the US have made “positive progress” on the issue of US-listed Chinese equities.

Both sides are working on a cooperation plan, the meeting’s guidelines stated.

The reassurance is backlit by the war in Ukraine and US warnings of severe sanctions against anyone who helps Russia.

“The last thing Beijing wants on top of everything else is any form of capital flight,” ACY Securities chief economist Clifford Bennett told AFP.

While the top-down responsiveness to market sentiment speaks volumes, Hong Hao of financial services firm Bocom International warned that “it’s a very high-level announcement … We still have to wait for a detailed rollout.”

sbr-bys / rox / apj / leg

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