China stock market slump: political pressures mount

BEIJING: Another savage day on China’s sharemarkets has heaped fresh pressure on the central leadership’s economic credentials amid growing concern the heavy market losses would bleed into the broader economy and hobble its ability to persist with key reforms.
杭州桑拿网

The benchmark Hangzhou Composite Index plunged 7.63 per cent on Tuesday, closing at 2964.97, below 3000 for the first time in eight months. The gauge has now lost 22 per cent in four days, including the 8.5 per cent fall on “Black Monday” – the worst run of losses since 1996.

Investors grasping for reassurance were met with total silence from both the central bank and securities regulator as a number of prominent editorials and news reports signalled the government was backing away from its expensive, unprecedented and ultimately failed attempts to prop up the market.

“It’s panic selling and an issue of confidence,” said Wei Wei, an analyst at Huaxi Securities in Hangzhou.

“The government won’t step in to rescue the market again as it’s a global sell-off and it’s spreading everywhere now. It’s not going to work this time.”

Unprecedented government intervention, including a $US400 billion fund to buy blue-chip stocks and a ban on major shareholders and state-owned enterprises from selling shares, has failed to stem a more than $US4.5 trillion rout in shareholder value since June.

But while reluctant to throw good money after bad, the Communist Party must also balance the risk of growing public anger if it chooses not to intervene again.

Fears remain that the sharemarket fallout could bleed into China’s already slowing economy, which would have an unquestionable negative impact on global growth. The barrage of negative headlines is likely to have an impact on consumer confidence, while the risk of margin loans defaulting is difficult to quantify.

Separately, the government’s move to devalue its currency, in part to bolster its exports, has seen an acceleration of capital outflows.

Most bank economists now consider it a given that China will miss its stated economic growth target of 7 per cent, with the question being how much.

Credit Suisse analyst Vincent Chan said the sharp falls in Chinese shares were reflections of both current weakness of the Chinese economy as well as the “government’s ability to handle the downturn”.

“We increasingly believe that the 7 per cent GDP growth rate would be very difficult to maintain,” he said.

Beyond short-term growth targets, prominent publications in China are now voicing concerns that the central leadership’s much-vaunted economic and financial liberalisation reforms have been derailed.

The China Securities Daily, a financial newspaper, ran a front-page commentary warning the wipe-out of investor confidence threatened the country’s entire economic reform agenda.

A commentary carried by Caixin, a respected financial publication, said any renewed attempts to rescue the market would be met with steep challenges.

“Firstly, the government has limited ammunition. Secondly, market rescue measures last time were very controversial … and the after-effects from it have yet to fade,” it said.

The official People’s Daily – a Communist Party mouthpiece and constant market cheerleader when shares were on a remarkable bull run earlier in the year – carried no mention of Monday’s falls in its pages.

With Bloomberg