Screens where China’s bond prices appeared went blank on March 15. Managers at the China Banking and Insurance Regulatory Commission, who surprised markets with the ban, cited legal technicalities and data security.
Some overseas traders couldn’t trade at all because of compliance issues, since trading in chatrooms is against regulations in many countries.
Others traded “blind” without much market information. International traders were at a major disadvantage to their counterparts in China if the latter had better data.
“Chat group quotes are in Chinese mostly,” a hedge fund strategist told the Financial Times. “If they don’t know Chinese, they don’t get quotes.”
One Chinese fund manager told the FT, “The market becomes more unpredictable these days, either flat or with huge volatility.”
Trading volumes dropped 30 to 60 percent.
“Bloomberg’s China Credit Tracker shows stress in such notes rose to 4 in February from 2 in January, which had marked the lowest reading since data compilation began in 2021,” Wei Zhou and Ailing Tan wrote. “The slide toward more stress came as Chinese dollar bonds lost 1.6 percent last month alongside a global pullback on fresh U.S. interest-rate worries.”
“We are going backward in terms of trading efficiency because this will lower secondary transaction volume for sure,” a senior China credit analyst in Singapore commented. “This definitely will spark more concerns on the transparency of China’s regulation.”
Bond price data feeds disappeared without official comment, which increased market unease. What information was reported about regulators’ reasoning was second hand from anonymous market actors.
The affected data vendors are private companies at risk of state takeover. Indeed, the only bond data service to work in China at the time of the price blackout was affiliated with the central bank.
While regime officials have repeatedly attempted to convince overseas investors that “China is open for business” in an attempt to increase investment and trade, the bond blackout is the latest in a long string of the Chinese Communist Party’s arbitrary crackdowns on the market.
The regime removed Didi’s ride-hailing app from stores days after its 2021 initial public offering on the New York Stock Exchange for $4.4 billion, robbing its new shareholders of about 70 percent of its value.
China’s draconian COVID-19 lockdowns slowed the entire economy for three years.
Concerns about the Chinese Communist Party’s utilization of its tech companies for espionage abroad make it difficult for them to expand and turn them against each other in cutthroat competition for local market share in China itself. Three of the biggest—Alibaba, JD, and PDD—lost $33 billion of market value in a single day last month.
As long as the regime limits foreign stock investors to purchasing shell companies called variable interest entities, rather than the companies themselves, and fails to allow full transparency in reporting and accounting, as required of all other companies on U.S. exchanges, China’s economy will be crippled with investor doubt.
China’s stocks are down about 15 percent from this year’s high, and in January, overseas Chinese interbank debt fell to its lowest since 2020. In 2022, international funds sold record amounts of China bonds.
While the regime in Beijing persists on its authoritarian path of communism, it will likely continue to stumble. No single individual is a better economic manager than the market composed of all individuals.
