China is facing stock market crisis

Foreign investors who were once attracted to Chinese stocks are now fleeing China, with net sales reaching $2 billion last January alone, The Economist said.

In light of the turbulent economic outlook, the Chinese stock market is facing a crisis that raises concerns for domestic and foreign investors alike. The Economist newspaper, quoting Bloomberg's report, said that the dismissal of Ye Huiman, head of the Chinese Securities Regulatory Commission, reflects the seriousness of the situation in view of the ongoing instability in the market.

The development comes after more than $6 trillion of market value evaporated from stock exchanges in China and Hong Kong over the past three years., The Shanghai Composite Index reached its lowest level in 5 years on February 5.,

Huiman's dismissal comes as a step in a long line of dismissals of regulatory officials in China after stock prices fell, with his predecessor Liu Xiu being dismissed in 2019 and later investigated on corruption charges. While the former head of the commission, Xiao Gang, according to details from The Economist, dealt with Chinese stocks and exchanges as a scapegoat for the market collapse in 2015.

Meanwhile, press reports highlight a worrying trend in which the Chinese government, particularly President Xi Jinping's inner circle, is intensifying its efforts to suppress negative views on the country's economic prospects.

The Ministry of State Security issued a warning against publishing pessimistic narratives, indicating a crackdown on dissenting opinions. Citigroup's precautionary measures and the revival of the controversial “Article 23” in Hong Kong underscore the government's efforts to control the flow of information.

According to the agency, these developments pose major challenges to economists, private bankers and foreign news companies working in China.

Deflation puts pressure on Chinese leadership

The newspaper says that the current decline in the stock market is linked to the gloomy economic scenario in China and according to the newspaper, the main reason for this is the faltering of the real estate market.

With prices and sales falling for more than a year, policymakers have struggled to stem the recovery, exacerbating economic challenges.

The current stock market decline is linked to China's poor economic outlook (Associated Press)

Beijing faces a number of concerns arising from the crisis, as more than 200 million Chinese citizens own shares, leaving authorities vulnerable to public blame for the market turmoil. While the social media platform has become a way to express dissent, some posts also speculate about potential threats such as a bomb or poisoning on the Shanghai Stock Exchange.

Foreign investors are decreasing

The newspaper says regulatory statements since late January, including a commitment by Chinese government-owned investment arm “Central Huijin” to buy stocks to stabilize the market, have made foreign fund managers feel uneasy . The campaign against short selling and the possible implementation of measures against hedging instruments such as short selling have raised concerns among foreign investors.

This regulatory uncertainty has led to a large withdrawal of foreign investors from Chinese markets, along with fears of possible detention of employees and charges of financial crimes.

Foreign and domestic investors are eagerly awaiting the establishment of a potential government rescue fund, rumored to be worth about 2 trillion yuan ($280 billion), equivalent to about 3% of the market capitalization of China's stock exchange.

long term repair

As China grapples with the current crisis, long-term reforms are being considered to reshape the dynamics of its stock markets. According to The Economist a key aspect is to focus on preserving investors' wealth by raising capital, with the aim of creating a more “investor-oriented” market. This includes fewer initial public offerings (IPOs) and more liquidity for secondary trading.

Money/currency of the PBOC or People's Bank of China.  One hundred CNY Chinese yuan bill with the flag of China.  100 RMB or Renminbi, reflecting the Beijing economy system, public banking policy and interest rates
Foreign investors who were attracted to Chinese stocks are fleeing after net sales of $2 billion in January alone (Shutterstock)

The government's plan also includes increasing the market value of state-owned companies, which are currently valued at half the level of non-government companies. The proposed reforms aim to create a “valuation system with Chinese characteristics” to boost the share prices of state-owned enterprises by educating investors about their broader social roles.

Policymakers aim to make state-owned enterprises more attractive to investors by introducing metrics such as return on equity, regular dividends and share buybacks.

The newspaper says that although these reforms may pose a challenge given the current economic slowdown, the government is considering them alongside broader plans to attract foreign investment and make Chinese stock markets more competitive on the global stage. Is.

However – in the context of the severity of the current crisis – a lasting transformation of the market is likely to require broad and ambitious measures, the newspaper says.

Read Previous

In the video.. the King of Jordan congratulates “Starchy” on his achievement in the Asian Cup and asks for blessings

Read Next

Palestinian officials: Settler attacks increased by 208% compared to before October 7

Leave a Reply

Your email address will not be published. Required fields are marked *

Most Popular