Beijing is too controlling to save China's markets, Plus US' Mexico imports beat China's for first time in 20 years-- China Boss News 2.09.24

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What happened

A Bloomberg report that Chinese leader Xi Jinping is meeting financial regulators this week set off an extended stock market rebound on the hopes that the government will launch “more forceful support measures” to battle a severe rout.

“The report on the Xi meeting followed a flurry of supportive announcements earlier in the day, including a vow by Central Huijin Investment Ltd., the unit that holds Chinese government stakes in big financial institutions, to buy more exchange-traded funds,” news analysts wrote.

“The news that the nation’s number one is holding a meeting is an encouraging development as it shows that the plunge is getting close to punching through the authorities’ comfort level,” Li Weiqing, fund manager at JH Investment Management Co., told Bloomberg.

“It gives me the impression that they are doing everything they can, apart from calling out to the market — now is the time to buy,” he added.

Central Huijin is part of a so-called "national team" of government-related entities that hold domestic equities on behalf of the state, according to Reuters who last week also reported that it and others were “piling in” to rescue China’s markets.

Although some analysts question whether the state’s buying strategy would work, they think the move could bolster confidence enough to avoid total collapse.

Others, like Logan Wright at Rhodium Group, however, noted something amiss.

“China’s economic policymaking process appears broken, or at the very least impaired. The recent liquidation of Evergrande and the uncertainty over measures to support the equity market merely add to a growing list of pressing economic problems where Beijing has either punted, or is refusing to announce any actions they are actually taking. The fact that there has been no Third Plenum meeting on economic reform held, or even announced, marks another meaningful change from past practice. This is not normal, for China or for any government struggling with a burgeoning crisis of confidence, at home and abroad,” he said.

Why it matters

‘Entrenching a sense of economic malaise’

Someone in Beijing thinks markets can be controlled in the same way that non-conforming locals and foreigners can, which is almost certainly why policymakers waited so long in this financial crisis to give support.

And we’ve all seen signs that China’s current dictator is convinced that markets serve the Chinese Communist Party, not the other way around.

Disheartened, maybe, but few were surprised to hear officials promise “to step up control of the country's financial system, using ‘Marxist financial theory’ to stave off systemic risks and boost the flagging economy,” as Radio Free Asia noted, citing last November’s Central Financial Work Conference report.

By December the Party had released “a detailed ideological statement … that made clear that it expected banks, pension funds, insurers and other financial organizations in China to follow Marxist principles and pay obedience to Mr. Xi,” New York Times staff underscored.

That tone-deaf message was drafted as economic reports concluded that China’s share of the global economy had plummeted to the greatest depths since Mao.

Last week, Xi fired China’s top markets regulator at the China Securities Regulatory Commission, replacing him with the “Broker Butcher,” Wu Qing, known “for cracking down on traders in the mid-2000s,” Bloomberg said.

“Xi's involvement predictably produced a personnel change, showing that the impulse at the political level is to tighten administrative controls rather than address core challenges. The lack of clarity on policy direction and the bias toward control and security-oriented policy will continue to weigh on confidence and disappoint expectations, entrenching a sense of economic malaise,” analysts at the Eurasia Group said.

Outdated playbook

If only the loss of a high-profile position in China’s top-heavy financial system was the worst that could befall a comrade.

CNN last week reported Tian Huiyu, ex-president of China Merchants Bank and former right-hand to Wang Qishan, China’s former vice president, was given a suspended death sentence on charges of bribery and insider trading.

Wang, a reformer, has long-standing ties to the biggest Wall Street bankers, like Goldman Sachs, and, according to The Wire China, was “one of Xi Jinping's closest deputies” until he was pushed aside in 2022.

In his Rhodium Group post, Wright gave a laundry list of issues in need of “some form of policy clarity from Beijing,” but none included a prescription to continue “killing the chicken to scare the monkey.”

And in China Path Finder, a Rhodium Group - Atlantic Council publication, Daniel H. Rosen and Rachel Lietzow reminded that “Beijing also simultaneously threatened economists with consequences for even talking about bearish signals and discontinued unflattering economic data, severely aggravating credibility concerns.”

“Policymakers did next to nothing to tackle the real structural problems. Though we expect the severity of 2022–23 declines to set China up for a modest cyclical rebound in 2024, long-term growth potential will disappoint until fundamentals are addressed,” they said.

Finally, wagering on Beijing’s “shadowy group of institutional investors set up in mid-2015” in order to prevent the Shanghai Composite Index’s then market collapse, is risky since small firms are “leading the decline,” as Bloomberg’s Shuli Ren warned.

“Unfortunately, the national team’s track record shows that it isn’t prepared or equipped to stem small stocks’ losses. In the past, they mostly bought blue-chip indices laden with state-owned banks via exchange traded funds,” she said.

This Week’s China News

The Big Story in China Business

US' MEXICO IMPORTS BEAT CHINA'S FOR FIRST TIME IN 20 YEARS: “New data released on Wednesday showed that Mexico outpaced China for the first time in 20 years to become America’s top source of official imports,” New York Times staff reported.