Why Beijing may be keen on boosting the stock market

March 05, 2019 12:41
Beijing aims to shore up the financial markets as part of efforts to boost the nation's core competitiveness amid the trade war with the US, observers say. Photo: Reuters

In the wee hours of Saturday, China’s top securities regulator suddenly unveiled the rules for the new science and tech board. Two hours later in the night, the Shanghai Stock Exchange released detailed rules and started to take applications.

Authorities had begun collecting opinions from the public just a month ago on draft regulations in relation to the new board. So, why the seeming haste now?

In my opinion, this may have to do with the US-China trade friction and an upcoming potential deal.

White House economic adviser Larry Kudlow revealed that Washington has drafted a 150-page US-China Trade Agreement. Beijing pledged to put on hold the 'Made in China 2025' plan and significantly reduce subsidy for target industries as part of a potential deal.

Also, the two sides will hold talks, engaging different levels of officials, to check whether Beijing delivers on its promises, or if the US has ground to resume tariff or other punitive measures.

That means China may have to give up its ambitious Made in China 2025 strategic plan if it concedes to such a stringent trade deal.

Many commentators have noted that the trade surplus between US and China is just a trigger for the trade war. Washington is actually most concerned about the Made in China 2025 plan, which could give Chinese tech firms too much influence globally.

If China has to give up the Made in China 2025 plan and the subsidy practices, an alternative is needed to keep the country competitive.

Beijing is now counting on boosting the stock market to help tech companies raise capital, thus enhancing China's core competitiveness.

But it's too early to tell if the stock market will behave as Beijing would want it. After all, tech firms have a very high failure rate. The government’s push to establish a tech board or rejuvenate the A share market does not necessary mean the companies will perform.

This article appeared in the Hong Kong Economic Journal on March 4

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist