After the Lunar New Year, China’s stock market reopened with several days of gains after Wu Qing was appointed the new chairman of the China Securities Regulatory Commission.
Guo Jun, editor-in-chief of the Hong Kong edition of The Epoch Times, pointed out on the “Pinnacle View” program that after China’s Lunar New Year holiday, the Shanghai and Shenzhen stock markets in mainland China reopened on Feb. 19 with unilateral upward trends.
Administrative Manipulation of Stock Prices
An administrative intervention involves directly using government power to control the stock market, tantamount to manipulating stock prices. According to Ms. Guo, this will have a long-term adverse effect on the stock market. For example, institutions may be prohibited from selling stocks, or the number of stocks sold daily may be limited. Another tactic is to mandate no net selling, meaning that the number of stocks sold cannot be less than those bought, which is a clear form of administrative intervention.“Such moves monopolize the market and deprive others of any opportunity to compete in the market since the [Chinese] regime would act as the major player,” said Ms. Guo. “If state-backed investment institutions participate in stock trading, it might be somewhat understandable since they are government-controlled capital. However, it would still have detrimental effects. It would be worse if it involved private investors, as private capital is profit-oriented. Being compelled to buy or sell equates to losing the equal trading rights of a market entity, which casts a huge shadow on future market expectations.”
Hu Liren, a former Chinese entrepreneur living in exile in the United States, explained on “Pinnacle View” that the recent upward trend in the Chinese stock market is typical when new officials take office. There were certain performance expectations after Wu Qing assumed the chairmanship of the China Securities Regulatory Commission. However, Mr. Hu noticed a strange phenomenon in the current market where the daily trading volume remained around 400 billion yuan, with minimal incremental funds. On the contrary, there was a considerable outflow of funds. The reason is that people are not optimistic about the Chinese economy or political situation, which are important factors in the market.
“Many major industries in China have collapsed,” said Mr. Hu. “Previously, much of the Chinese stock market relied on real estate. About a decade ago, when the real estate industry began to flourish, many real estate companies went public through shell companies. Some seemingly traditional industries, such as knitting or clothing, generated yearly profits from real estate.”
Although the traditional industries were thriving then, their profits were meager. The net profit margin of Chinese manufacturing was around 5 to 10 percent and sometimes even less than 5 percent.
A Grim Future
Mr. Hu explained that no one in the industry in China is optimistic about the current Chinese stock market since it has lost its main function of the capital market. He listed three essential elements for a stock market to develop healthily.The first is privatization, which is a factor in the country’s politics. Now, China is returning to public ownership, and the private economy may gradually diminish.
The second is economic factors. A country with a healthy economic cycle will lead to a healthy stock market development. If the economy is collapsing, then the capital market loses its function.
The third is wealth among the people. Since the stock market mainly relies on private assets, if the private capital has been exhausted, the stock market will be in decline.
The CCP’s Corruption
Mr. Hu further pointed out that the process of listing companies in China is highly bureaucratic and not indicative of a healthy market. He shared an example of a business associate back in China who owned a listed company. However, despite having an excellent company, he could not get listed for years. Many companies inferior to his had already gone public.“In the end, he found a special way to succeed,” Mr. Hu said. “He paid a female influencer to become his mistress, and she networked with [the CCP’s] national political figures at a top golf course in Beijing. Eventually, she connected with the right person in the regime, and his company was easily listed.”
He concluded that none of the CCP bureaucrats who review and approve listings at the China Securities Regulatory Commission have the power to decide who can list or not. Instead, their superiors manipulate the stock market and control who can list. This is the level of systematic corruption in China.
