[The Epoch Times, February 10, 2022]Recently, the trend of the mainland stock market has been the most concerned by investors. Although before the Chinese New Year, the CCP’s official media shouted to “stand up the backbone of A-shares”, and institutional investors also took action to protect the market, but it still failed to prevent A-shares from continuing to fall years ago. After the New Year’s holiday, the adjustment of the A-share market continued. It can be seen that A shares finally staged a “V”-shaped reversal on the 8th due to the “national team” to rescue the market, which also drove the three major stock indexes to continue to rise on the 9th.
So, why does the Chinese Communist Party have to boost confidence in the stock market, and what does it want to achieve? Before that, CSRC officials held meetings with executives of Western banks and assured that China would achieve “substantial growth” in 2022. Are they trying to reassure these executives? Today we will talk about these.
The “national team” rescues the market and boosts A-share confidence
On the morning of the 8th, the major indexes of the A-share market fell, among which the ChiNext Index fell sharply, falling below 2,800 points during the session, hitting a new low in nearly 10 months.
Generally speaking, a 20% drop in the stock index will enter a “technical bear market”, while the ChiNext Index has fallen by more than 20% from its peak in August last year. This means that, from a purely technical point of view, the ChiNext Index has entered a “bear market”.
On the afternoon of the 8th, the main capital had a substantial net inflow, and the three major A-share indexes collectively staged a “V”-shaped reversal. The CSI 300 fell 2.4% at one point, its biggest intraday drop since August 2021, but ended the session down just 0.6%.
According to mainland media, the substantial net inflow of major funds is due to the fact that the A-share market is converging on four positive factors. However, Bloomberg disclosed in the report that the relevant funds of the Chinese government, that is, the funds of the “national team”, entered the market on the afternoon of the 8th to support the A-share market and slowed down the decline. The purpose is to maintain the stability of the stock market. development to avoid potential systemic risks.
In fact, it is not surprising that the regulatory authorities will rescue the market, because relevant signals have been released before.
According to an exclusive report by Reuters on January 28, in order to dispel executives’ doubts about China’s economic prospects, on the 25th, the China Securities Regulatory Commission held a meeting with executives of top Western banks and asset management companies. The China Securities Regulatory Commission Chinese officials assured attendees that China will make economic growth a priority this year and will achieve “significant growth” in 2022.
Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, also told executives at the meeting that coordination between China and the U.S. on regulations governing Chinese companies listed in New York was progressing and that there could be “positive surprises” by June or earlier.
Therefore, everyone has also seen that on February 8, A shares staged such a V-shaped reversal drama. After that, it continued to rise on February 9. At the close, the three major indexes turned red. A total of 3,500 stocks in the two cities rose, and 115 stocks rose by the daily limit. As of the close of A-shares that day, the net inflow of northbound funds exceeded 4.5 billion yuan. This “northbound capital” refers to the foreign capital that flows into the A-share market from the Hong Kong market through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect mechanisms.
It seems that this time, the determination of the CCP’s regulatory authorities to save the market is relatively firm, and one of the main reasons is that the CCP’s desire to stabilize foreign investment has become more and more urgent when the downward pressure on China’s economy continues to increase and economic transformation must be carried out at the same time. Stabilizing foreign investment” is also one of the goals of the “six stability and six guarantees” proposed by the CCP.
At the end of last year, the Ministry of Commerce of the Communist Party of China mentioned that in 2022, it will increase its efforts to attract foreign investment, optimize the business environment, stabilize the fundamentals of foreign trade and foreign investment, and promote domestic and international dual circulation. At the press conference held on January 25 this year, the Ministry of Commerce of the Communist Party of China further stated that it will make efforts in six aspects to increase efforts to attract foreign investment, ensure that the opening-up measures in areas such as automobile manufacturing are effective, and guide more foreign investment in Advanced manufacturing, modern services, high-tech, green and low-carbon, digital economy and other fields, as well as the central and western regions.
However, officials from the Ministry of Commerce of the Communist Party of China also mentioned that it is expected that China’s work to stabilize foreign investment this year will still face greater challenges. The main reasons include: due to the localization and regionalization characteristics of the reconstruction of the international industrial chain, which intensifies the competition for the introduction of foreign capital in various countries; in addition, domestic enterprises are facing pressure from rising prices of labor, land, raw materials, etc., as well as the impact of the epidemic and the external environment and other factors .
However, what the Chinese Ministry of Commerce did not mention is that the Chinese Communist Party has implemented an unprecedented regulatory policy in 2021, which has severely hit China’s leading Internet companies and education and training companies, as well as many foreign investors.
For example, the Nasdaq Golden Dragon China Index (HXC) has fallen about 59% from last year’s record highs and is down 5% so far into 2022.
In other words, it is not only the Chinese stock market that needs to boost confidence, but also the Chinese concept stocks in the United States.
Therefore, the news of the CCP’s “national team” entering the A-share market has quickly become a major positive for Chinese concept stocks listed in the United States. It can be seen that on February 8, some large technology Chinese concept stocks soared, Alibaba rose 6.2%, JD.com It rose 3%, Pinduoduo rose 13%, Didi rose 10%, and Baidu rose 4.8%. The Nasdaq Golden Dragon China index rose 3.9 percent, its biggest one-day gain since late last month.
However, it remains to be seen whether this upward momentum can be sustained, and whether it can completely reverse the decline of A-shares and Chinese stocks in the US. And it may not be enough for the CCP to reassure foreign investors simply by boosting the stock market.
9 of the 10 largest Chinese funds lost money and foreign capital was hit hard last year
First, foreign investors suffered heavy losses last year, mainly due to the CCP’s regulatory policies.
For example, “China Fund News” reported that as of December 29 last year, 9 of the top 10 overseas Chinese stock funds in 2021 actually lost money. Among them, there are 3 funds with a loss of more than 20%, and 5 with a loss of more than 15%; the top 4 Chinese stock funds with a scale of more than 40 billion yuan all lost money.
According to the report, many of these funds managed by global asset management giants such as Allianz Investment, JPMorgan Asset Management, Schroder Investment, Fidelity International, UBS Asset Management, BNP Paribas, etc. are veterans with more than 20 years of investment experience. Taking the helm shows how difficult China’s investment operations will be in 2021.
Moreover, the CCP’s regulatory environment remains uncertain in the future. Moreover, in the context of the game between China and the United States, the regulatory policies of the United States will also have an impact on Chinese investment.
For example: in the A-share market, the pharmaceutical sector continues to weaken, because in the context of “common prosperity”, as a field closely related to people’s livelihood, the policy trend of medicine has also become one of the core anxiety of investors. A few days ago, the U.S. government also included 33 Chinese entities on the “unverified list” of the U.S. Department of Commerce, including “WuXi Biologics”. The result is that “WuXi” Stocks also plummeted collectively.
Second, the real estate debt crisis triggered by China Evergrande shook the world, and with the arrival of the debt repayment peak, it is inevitable that more Chinese companies will default on their bonds.
According to statistics, in 2021, there will be a concentrated outbreak of Chinese dollar bond defaults, with a total of 27.436 billion US dollars in default, a significant increase of 163% year-on-year, involving 63 defaulted bonds, and 14 defaulting entities for the first time. Among them, the default amount of real estate companies exceeded 24.4 billion US dollars, accounting for 90%.
Wind data shows that from 2022 to 2025 is the peak period for the repayment of US dollar debts of real estate companies, with a total amount of more than 82.6 billion US dollars. Among them, the due balance of overseas debts of real estate enterprises in 2022 will exceed 27.3 billion US dollars, and the debt repayment pressure is concentrated in the first half of the year.
Some analysts believe that the turmoil in the real estate market is not over yet. Nomura’s analysis believes that at a time when fundamentals have clearly deteriorated, the real estate industry will be even more volatile than before, leading to weakening investor confidence and making the overall market more vulnerable.
Third, China and Hong Kong implemented strict epidemic prevention measures, which also led to the withdrawal of foreign capital.
Over the past two years, China’s strict anti-epidemic policy has caused foreign companies in China to complain, and even the International Monetary Fund has called on the Chinese government to relax its anti-epidemic measures. And Hong Kong, following Beijing’s implementation of the “zero” policy, has led to the accelerated withdrawal of international talents.
China is the biggest variable in the global economy this year
In addition to these factors, China’s economic growth prospects are also worrying foreign investors.
For example, in its annual assessment report released by the International Monetary Fund (IMF) at the end of January, China’s GDP growth forecast for this year was lowered to 4.8% from the previous 5.7%. Prior to this, the US investment bank Goldman Sachs also released a report on January 12, which lowered its forecast for China’s economic growth in 2022 to 4.3% from the previous 4.8%. Both have lowered their growth forecasts for this year to below 5%.
Goldman Sachs lowered its forecast mainly because of increased restrictions on business activities in Beijing as it battles the Omicron virus. The reason for the IMF’s downward revision is that China’s growth momentum continues to slow, while consumption continues to be weak.
The IMF report noted that consumption has lagged behind any other in driving GDP. The CCP government’s strict anti-epidemic measures have discouraged consumers from spending money at will. And so far, Beijing has not taken any meaningful steps to boost consumer spending.
In addition, Lu Ting, chief economist of Nomura Securities China, also believes that it is very difficult for China’s GDP growth rate to exceed 5% this year. The easing stimulus policy will inevitably increase, but it also faces multiple restrictions. The policy space is far less than before, and the potential growth rate of China’s economy is also declining. It is very difficult to repeat the practice of 2009 and 2016, which has been driving the economy at all costs. , the sequelae are probably also very high. Moreover, the epidemic itself is very uncertain, and its impact on the macro economy cannot be underestimated. That is to say, considering various factors, it is very difficult to maintain a GDP growth rate of 5 this year.
The Economist Intelligence Unit also published a report in October last year, predicting that among the top ten scenarios that bring the greatest risks to global economic growth and inflation this year, the four largest scenarios are all related to China, namely, “The deterioration of Sino-US relations will make the global economy worse. Decoupling”, “China’s real estate crash causes sharp economic slowdown”, “New variant virus emerges and proves vaccine-resistant”, and “China-Taiwan conflict forces U.S. to step in”, showing that among global economic risks, China Factors dominate and are the biggest variables in the world in 2022.
Under such circumstances, large-scale foreign investment into China is indeed a high-risk thing.
Institute of Financial and Commercial Economics
Planning: Yu Wenming
Written by: Li Songyun
Editor: Wei Ran, Yu Wenming
Edit: Song
Producer: Wen Jing
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