No one who has spent any amount of time studying China and its rise really expects the country to change its tune when it comes to free speech and that applies equally to those who the government believes bear responsibility for the recent sharp falls in the domestic markets.
But the spectacle of a journalist for the respected Caijing magazine being forced on national television to “confess” to spreading information that caused “panic and disorder” and the “questioning” of a fund manager from the China business of UK-listed Man Group, only serve to heighten worries over the real problem: the slowing Chinese economy.
Xinhua, the Chinese state news agency, has said at least 197 people have been caught in an investigation into the spreading of rumours about the stock market.
The moves only raise more questions about China’s commitment to a more open economy and have implications – mostly negative – for investors around the world.
Beijing’s efforts to put a floor under free-falling share prices will come at a cost, not just to China but to foreign investors as well. On top of the public money spent buying shares, the government’s intervention has disrupted fundraising for small companies and set back efforts to make the stock market a tool for economic reform.
Shenzhen Stock Connect postponed?
The market fall and subsequent actions by Beijing have also led Hong Kong Exchanges and Clearing chief executive Charles Li Xiaojia to say now may not be the right time to talk about mutual market access, bolstering the belief by brokers in the city that the proposed plan to connect the Hong Kong and Shenzhen stock markets may be postponed to next year.
Michael Hewson, chief market analyst at CMC Markets UK said in a South China Morning Post story that “with Chinese authorities making it plain that they are more interested in arresting and scapegoating individuals for ‘undermining market confidence’ than in taking measures to support the stock market, Chinese markets have continued their wild gyrations over concerns about the extent of the slowdown being experienced by the Chinese economy.”
“While these measures may suit the narrative of the Chinese government in helping mask some of the problems in the Chinese economy, they do nothing for investor confidence and in particular in improving investment confidence within China itself.”
Other foreign firms are also concerned as evidenced by the quotes from a foreign lawyer in a New York Times article.
“There is, generally, a very nervous atmosphere, as people wait to see the outcome of some of these investigations and how deep the rabbit hole goes,” said Effie Vasilopoulos, a partner at the Hong Kong office of the Sidley Austin law firm who works with hedge funds that invest in mainland China. “How wide a net is the government going to cast in terms of looking at foreign firms and their operations — not just onshore, but also offshore as well?”
The authorities are canvassing industry players in several cities with police downloading extensive trading data and asking fund managers why they sold shares when the market was going down, prompting discussions about basic investment strategy. Officers have bluntly told some fund managers to just stop selling, according to the article.
These actions by Chinese authorities are not the actions of a government confident in its ability to operate a stable, well-planned market, but rather the actions of the emperor of old, strutting about, confident in the fact that no one is willing to say he is wearing no clothes.
Matt Driskill is a contributing editor at Fund Selector Asia. He has lived and worked throughout the US, Asia and Europe since the 1980s and previously served as managing editor for INSEAD’s IQ Magazine, as editor of Business Asia for the International Herald Tribune and as a senior editor at Reuters.
