Date
25 May 2017
A bull market followed by a crash has turned China's stock market upside down. The government took steps by ordering major state brokerages to maintain net buy positions. Photo: Internet
A bull market followed by a crash has turned China's stock market upside down. The government took steps by ordering major state brokerages to maintain net buy positions. Photo: Internet

How Chinese financial firms are surrendering to politics

China’s three growth engines — investment, consumption and exports — are showing signs of slowing growth.

However, the financial industry expanded 17.4 percent in the first half, more than double the gross domestic product growth, according to Bloomberg.

The robust growth in the financial sector partially offset a drag on the economy from other industries.

The stock market did 36.7 trillion yuan (US$5.91 trillion) worth of deals in June, up 17.47 percent from the month before, the China Securities Regulatory Commission (CSRC) said.

That breaks down to 1.75 trillion yuan of daily turnover, nearly 10 times that of last year.

The transaction stamp duty climbed tenfold to 36.6 billion yuan from last year.

Bloomberg is reporting that the stock market contributed 0.5 percentage point to the 7 percent GDP growth in the first half.

The figure could have been lower if the financial sector merely matched last year’s 10.2 percent growth.

The central government’s efforts to leverage the stock market to boost the real economy have paid off, although the effects were short-lived.

The equity market has fallen back sharply in the past few weeks and market turnover has also contracted.

Which is why the government continues to watch the market closely after unveiling measures to stem the sell-off.

A dramatic rally in heavyweight stocks such as PetroChina (601857.CN) on Wednesday was quite odd.

It was reported that the government intervened in the market again and bought some blue chips and small and medium caps, according to brokerage sources.

The market clawed back to positive territory after posting a loss on Thursday but financial stocks tumbled 1.15 percent.

The number of stocks that hit the upper band of the daily trading limit fell to less than 100. Fewer than 50 stocks touched the lower band.

Turnover in Shanghai and Shenzhen tumbled to about 1 trillion yuan.

Reports say the CSRC has been encouraging brokers to remain net buyers in their proprietary trading.

As listed companies, they are being asked to undertake a huge political cause.

For example, China Life Insurance Co. (601628.CN) said it sold 30 million shares of CITIC Securities on July 10 for 821 million yuan.

The news stoked speculation the company was defying a CSRC directive against offloading shares by any company that holds at least 5 percent of the stock.

China Life later said its holding in the brokerage is less than 5 percent and that it has been buying A shares to help ensure a healthy long-term development of the stock market.

It said it sold some shares but stayed a net buyer, adding its actions complied with regulations.

As a listed insurance company, China Life is responsible to its shareholders.

However, many Chinese financial firms have been forced to surrender their business independence for political reasons to the detriment of their investors.

This article appeared in the Hong Kong Economic Journal on July 17.

Translation by Julie Zhu

[Chinese version中文版]

– Contact us at [email protected]

RA 

a columnist at the Hong Kong Economic Journal

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