SUN WUKONG Moving markets and
mountains By Wu Zhong, China
Editor
HONG KONG - Wang Qishan, China's
newly appointed vice premier in charge of
financial affairs, has secured at least temporary
popularity among the country's nearly 100 million
small stock investors with his recent measures to
prop up the market.
Many even see Wang as
their "liberator", capable of removing "three
mountains", an adaptation of a phrase coined by
the late chairman Mao Zedong in reference to the
purpose of the communist revolution he led - that
is to overthrow the "three big mountains" that had
lain on the backs of the Chinese people -
imperialism, feudalism and bureaucrat-capitalism.
In today's China, people like to use or
paraphrase Mao's comments to express views on
issues. As they have become
increasingly upset by soaring
costs for housing, medical care and education,
these are now considered the three new "mountains"
on the backs of the general population.
Not to be outdone, the country's tens of
millions of retail stock speculators have taken
the phrase for their own predicament as they have
watched their holdings collapse in value. The
benchmark Shanghai Composite Index (SCI), which
last October hit a record high above 6,100 points,
has plummeted by almost half, falling below the
3,000-point mark on April 22 before closing that
day at 3,148.
The three mountains they saw
as hindering a recovery were an onerous (0.3%)
stamp duty on both the buyer and seller in share
transactions, fears of a heavy sell-off of
previously non-tradable shares, and unregulated
refinancing activities by listed enterprises.
Last week, the government cut the stamp
duty to 0.1% and placed restrictions to limit
stock sales by a single shareholder. Thus the
first two "big mountains" were removed (see
China tax cut reverses shares
plunge, Asia Times
Online, April 25, 2008). This is widely believed
to be the result of decisions made by Wang.
When the appointment of Wang, 59, as vice
premier overseeing the financial industries was
approved by the National People's Congress in
March, it was widely expected his first task would
be to "rescue" the plunging stock market.
He came to the post with a reputation as
the government's chief fire fighter and problem
solver, notably when he was appointed executive
vice governor of Guangdong province to clean up
the mess when Guangdong International Trust and
Investment Corp (GITIC) and Guangdong Investment,
two investment arms of the Guangdong government
listed in Hong Kong, ran into financial trouble
during the 1997 Asia financial crisis.
Wang decided to let GITIC go under, with
debts of about US$2.54 billion, and restructure
Guangdong Investment. This was the first time
China had let a government investment arm declare
bankruptcy.
In early 2003, he was named
mayor of Beijing municipality when the capital was
hit by an outbreak of severe acute respiratory
syndrome. Wang replace Meng Xuenong, who was
sacked for his role in attempting to cover up the
epidemic.
According to China Securities
Journal, one of the country's leading business
newspapers, Wang this month paid an inspection
visit to the China Securities Regulatory
Commission (CSRC) and listened to a briefing by
CSRC chairman Shang Fulin. Wang used the visit
to stress the importance of effective supervision
of fund managers. He was quoted as saying that
fund managers, when making investment decisions,
should also take into consideration their
potential political impact. In other words, Wang
warned that it would be politically incorrect for
fund managers to dump shares given the current
bearish market. The report signaled that the
government would soon take action to prop up the
market.
Shortly after Wang's inspection
trip, the two measures to rescue the market were
announced, boosting confidence that Beijing wants
the stock market to go up ahead of the Beijing
Summer Olympic Games in August, encouraging a
relaxed atmosphere and sense of prosperity in
which people could enjoy the games.
Investors and market analysts now expect
the authorities will soon move to regulate
refinancing activities by listed companies.
Government efforts to cool the
fast-growing economy, such as tightening credit,
have prompted many listed companies to raise more
funds from the securities market. On January 21,
Ping An, China's second-largest insurer and listed
in Shanghai and Hong Kong, took the lead by
announcing that it would raise about 160 billion
yuan (US$23 billion) through issuing 1.2 billion
new shares and 40 billion yuan of convertible
bonds.
By late February, as reported by
the People's Daily, the Communist Party's flagship
newspaper, 44 listed companies (including Ping An)
had unveiled plans to raise a total of 256 billion
yuan. Thirty-five of the firms said they would
issue new shares, two would make share placements
and the other seven plan to sell corporate bonds.
In last year's bullish market, 190 listed
companies raised 390 billion yuan by issuing new
shares or bonds. Many are raising cash merely for
the sake of holding more money rather than for
specific capital investment.
Such frequent
refinancing activity hampers investors' already
fragile confidence and raises concerns that listed
companies simply see the stock market as their
auto-teller machine.
Responding to public
concerns, a CSRC spokesman on February 25 said
listed companies should not raise funds for
"vicious" purposes. Without naming Ping An, the
spokesman said any refinancing activity must take
into consideration investors' "bearability".
This exposes the lack of refinancing
regulations, a gap that under Wang the CSRC is
expected to plug.
Some Chinese economists
say the "three big mountains" in the market
indicate three systematic discrepancies. If these
problems are corrected and more specific rules
worked out, the market will become more mature and
develop in a more normal and healthy way.
This is probably true, provided the
government eventually keeps its hands off the
stock market. Take stamp duty for example. The
government apparently sees it as a macro-control
instrument to guide market movement. Last
September, it raised the tax from 0.1% to 0.3% in
an attempt to cool prices that had roughly doubled
since the start of the year. And now it has cut
the tax to warm up the market. Who can guarantee
that the tax will not be changed again in near
future?
The timing of last week's cut
indicates that the government believes the
3,000-point mark is a market bottom. What
regulators consider is too high a market is
anyone's guess. But given Wang's rich experience
in the financial industry, he may not want a
market that is highly volatile. People who expect
the market to gain quickly in the runup to the
Olympics may be disappointed, even allowing for
the near 10% one-day gain immediately following
the stamp duty reduction.
From this
perspective, such active involvement by the
visible hand of government, in addition to market
forces, means the stock market is still not
mature. Wang's expertise in finance merely means
the government may play this game with more skill
and sophistication than hitherto.
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