From Hong Kong to New York, Chinese corporate prices have been on a roller coaster in recent days. On March 14 and 15, they recorded the biggest drop since the financial crisis of 2008, losing 75% of their maximum value. The tech giants, in particular, have seen their achievements over the past nine years go to waste.
The international context has a lot to do with this. After US claims that Beijing has accepted Moscow’s request for support, investors fear that Chinese companies will in turn be affected by Western sanctions. The inflation risk associated with the war in Ukraine is also putting pressure on prices. Another factor: The US Securities and Exchange Commission (SEC) has named five Chinese companies that will be delisted if they do not submit their audit reports soon.
But above all, the uncertainty associated with the domestic situation has affected Chinese stocks. China is indeed experiencing its biggest rise in the epidemic in two years, and related health measures, such as the (semi-)lockdown of a number of major cities, from Shanghai to Shenzhen, could slow growth.
Major Chinese technology companies in the viewfinder
Regulatory uncertainty affecting big Chinese tech companies hasn’t helped matters. Tencent is facing a record fine for violating anti-money laundering rules, according to the WSJ. Its rival Alipay will also be tested this year. Didi Chuxing was also forced to put its Hong Kong IPO plans on hold after failing to address some IT security issues. The Douban platform has been accused by the Cyberspace Administration (CAC) of “stirring up online chaos.” At the same time, the CAC unveiled new rules governing the activities of minors on the Internet, video games and live streaming. From now on, all online service operators will have to integrate “youth mode”. All these factors have accelerated the decline in prices of Chinese companies…
Until Beijing decides to intervene. Following a meeting of the Financial Stability and Development Committee (FSDC), which oversees the central bank and financial regulators, on March 16, Vice Premier Liu He vowed to do whatever is necessary to support the economy in the first quarter, introducing stock-friendly measures. markets, dialogue with the SEC to reach an agreement on audit procedures, and even assistance to Chinese companies wishing to go public abroad.
Real estate support in China
The real estate sector is also promised “solutions to reduce and prevent risks”, as well as “support measures aimed at promoting a new approach to development.”
In addition, President Xi Jinping’s right-hand man has vowed to complete the “fix” of Internet platforms “as soon as possible” through “transparent and predictable” rules.
In a subtle wake-up call, the leader said various agencies should first consult with financial regulators before making decisions that could affect financial markets. A way to signal the CAC to “slow down”?
In any case, this announcement had the expected effect. Prices rose on the same day, with the Nasdaq Golden Dragon China index up 33%. Two days later, in Hong Kong, the Hang Seng index, dedicated to Chinese companies, returned to its level a week earlier.
Don’t piss off small investors in China
It is amazing that the authorities intervene with such speed. This suggests that Beijing is taking the situation very seriously and in no way wants the situation to get out of control. The authorities have not forgotten the dissatisfaction of small investors during the 2015 stock market crash. This reaction is not devoid of the key word of the year “stability”, inherent in the holding of the XX Party Congress in the autumn.
Now it’s up to talking. If the government has already shelved its reform projects (wealth tax, raising the retirement age) and muted the concept of “common prosperity” dear to Xi Jinping, then we will have to do more to really reassure investors and give every chance to achieve our ambitious goal. GDP growth target of 5.5% this year.
What specific measures to expect? Analysts predict that the Central Bank should again reduce the reserve requirement for banks and its interest rates within a few weeks. But as for the announced end of the takeover of the tech giants, there is room for doubt, given the number of cases pending.
In the end, a reassuring statement will not be enough to completely allay fears, as the fundamental reasons for such pessimism remain, namely the “zero Covid strategy” that shows its limits, China’s more than ambiguous stance in the face of the Ukraine crisis, and ongoing tensions with Washington.