China is undermining its own efforts to open the capital account and liberalize the renminbi by intervening in the stock market, according to experts.
The government has called into question its determination to undertake financial reform with its “strong, visible hand” in trying to stop a market meltdown, an unnamed banker was quoted as saying by the Hong Kong Economic Journal.
Market observers are skeptical about government measures to tackle the market slump, saying these are sending the wrong signal.
These include a ban on the sale of shares by investors who hold at least 5 percent of any stock, a freeze on initial public offering applications and ramped-up liquidity injections from government institutions including the social security fund.
The market rout has led to concerns over liquidity that could impact the renminbi’s chances of inclusion in the International Monetary Fund’s SDR (special drawing rights) basket.
Also, it has raised uncertainty over Shenzhen-Hong Kong Connect, a second cross-border stock trading platform expected to open this year.
A delay in the launch of an investor scheme for qualified individual investors is also now likely, according to the banker.
Raymond Yeung, a senior economist of the Australia and New Zealand Banking Group Ltd., said Chinese authorities will be more cautious about opening the capital account because of the ongoing market turbulence.
However, he said, China is unlikely to delay the liberalization of the renminbi or the opening of its capital market.
Translation by Vey Wong
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