Date
20 July 2017
A coal mine in Jixi, Heilongjiang province. The government is planning to cap new capacity and eliminate obsolete production. Photo: Reuters
A coal mine in Jixi, Heilongjiang province. The government is planning to cap new capacity and eliminate obsolete production. Photo: Reuters

Why China’s A shares are in better shape now

China’s stock market mounted a four-day rally this week after a deep correction last Friday.

On Thursday, the Shanghai Composite Index gained 1.35 percent to close at 3,548 points.

However, turnover in Shanghai and Shenzhen fell to 795.5 billion yuan (US$124.1 billion) as a result of tighter rules on margin financing and short-selling.

That said, the market is in a much better shape after squeezing out bubbles.

As many as 2,311 stocks out of 2,475 posted gains on Thursday. Only 147 fell.

That shows the market rally is on a much more solid ground.

It’s estimated that 10 new listings about to hit the market will freeze 1.6 trillion yuan in margin financing.

The market is likely to recover gradually.

However, investors are still wary of capital being drained into new listings. The market is speculating about a slower IPO pace in the coming year.

Beijing still plenty of choices in its policy toolbox to stabilize the market.

It’s convinced injecting liquidity works.

The Chinese central bank pumped 80 billion yuan into the market through a seven-day repo. It injected a net of 50 billion yuan this this week, the highest in nearly three months.

Bailout pain

The National Development and Reform Commission (NDRC), the nation’s top economic planning body, has been scrambling to bail out companies.

Large Chinese coal miners suffered a 62 percent slide in profit in the first 10 months of the year from the year before.

And state-owned coal companies recorded a loss of 22.3 billion yuan this year from a profit of 30 billion last year.

The NDRC is studying measures to tackle overcapacity.

The government is planning to cap new capacity and eliminate obsolete production during the 13th Five-Year Plan.

It also wants bigger coal miners to take over smaller rivals.

In the first 10 months, China’s coal output fell 3.6 percent to 3.05 billion metric tons from a year earlier.

Coal imports slumped 30 percent to 170 million metric tons, helping ease oversupply in the domestic market.

However, coal stocks responded calmly to the news with a modest rise of 0.82 percent.

China Shenhua Energy (601088.CN), China Coal Energy (601898.CN) and Yanzhou Coal Mining (600188.CN), the nation’s leading coal miners, saw their stocks consolidate for a while.

By contrast, information technology, media and electronics rose more than 3 percent on Thursday.

The long-term outlook of these industries is positive thanks to the new economy.

Structural reform

China will intensify structural reform on both the supply and demand sides in 2016 to ensure steady growth, Premier Li Keqiang told Chinese economists on Thursday.

Li said China will encourage a mix of state funds and private capital in investment and push forward urbanization, industrial upgrades and livelihood projects.

It will continue to cut red tape to foster emerging industries and speed up the overhaul of traditional industries.

However, it remains unclear whether these measures can drive the benchmark above 3,600 points.

This article appeared in the Hong Kong Economic Journal on Dec. 4.

Translation by Julie Zhu

[Chinese version中文版]

– Contact us at [email protected]

JZ/DY/RA

a columnist at the Hong Kong Economic Journal

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