China Vows Support And Gives Markets Reasons To Rejoice – For Now

Chinese regulators are expected to incrementally ease their crackdown on sectors ranging from technology to real estate after Vice Premier Liu He vowed to stabilize battered financial markets, but investors are also urged to exercise caution as policy uncertainties still loom large.

Government departments now must consult financial regulators – including the Financial Stability and Development Committee (FSDC) led by Liu – before releasing policies deemed to have a “significant impact” on capital markets, according to a top-level meeting yesterday.

The vice premier, President Xi Jinping’s closest economic adviser, addressed issues that stretch from preventing risks in the property sector to supporting Chinese companies listed abroad. His reassurance of prioritizing economic development led to a rebound of the Hang Seng Tech Index, which rallied as much as 22% on Monday and another 7.8% Tuesday. Many of the index’s constituents, such as e-commerce giant Alibaba and food-delivery platform Meituan, bounced more than 25% from an earlier selloff triggered by regulatory woes, the situation in Ukraine, and delisting concerns of Chinese companies listed in the U.S.

“At least this year, all policies would be around the baseline of maintaining stability,” says Shen Meng, director of Beijing-based boutique investment bank Chanson & Co, adding that there is likely to be tax reductions for key industries such as manufacturing, logistics and technology.

Hong Hao, managing director and head of research at Bocom International in Hong Kong, says there could be adjustments such as accelerating mortgage approvals, extending more loans to property developers and refraining from including more cities in the country’s property tax trial, which exacerbated a slump in the housing market after being first rolled out in Shanghai and Chongqing.

The government, in the meantime, could give the tech firms a boost by working with them on cloud-based smart city projects, says Cui Chenyu, Shanghai-based senior analyst at research firm Omdia. But she doesn’t expect regulators to loosen their grip on online games, which hasn’t seen any new licenses being handed out since the end of last year. The prolonged hiatus is aimed at controlling content and protecting minors from addiction.

“The trend of stricter oversight over online games and video streaming probably won’t change,” she says.

Another keenly watched issue is internal coordination within the country’s various government departments. Historically, Vice Premier Liu’s FSDC doesn’t have jurisdiction over the now all-powerful Cyberspace Administration of China, according to Feng Chucheng, a partner at Beijing-based consultancy Plenum.

The latter is the one that has issued new data rules, is leading the investigation into ride-hailing giant Didi Global, and ordering every Chinese company with more than one million users to undergo a security review before listing overseas. Just on Monday, CAC dispatched a team to social media company Douban after it discovered “serious network chaos” on the company’s platform.

“It is good that Liu He raised the coordination, but the risk is that it is difficult to execute,” says Feng. “With a renewed, expanded mandate, there will be bureaucratic resistance and barriers for agencies like CAC and MIIT(Ministry of Industry and Information Technology) to submit every policy proposal to the FSDC for coordination purpose.”

And under the current context, some are simply urging investors not to get overly optimistic, and to stay on the sidelines until more clarities arrive.

“Conventional metrics may indicate generational opportunities in terms of entry points, but buying the dip right now seems like a fool’s errand,” says Brock Silvers, a Hong Kong-based chief investment officer at Kaiyuan Capital. “There will be a time to re-engage with Chinese equities, but it’s not today. ”