“Chinese stocks are on a roller coaster”, says Paul La Monica for CNN. The country’s tech shares had plunged in recent weeks, with the Nasdaq Golden Dragon index of US-listed Chinese tech plays down 38% during the month through 14 March. Beijing’s crackdown on tech firms, “worries about leading Chinese companies possibly getting delisted in the United States” and a surge in domestic Covid-19 cases had all weighed on sentiment.
On 16 March, regulators came to the rescue. A top financial policy committee chaired by vice-premier Liu He announced that the government would “actively roll out policies that benefit the markets”. Investors took it as a “trend changer” and Chinese stocks had their best day since 2008, says Ipek Ozkardeskaya of Swissquote. The Golden Dragon index soared almost a third, while the Hang Seng Tech index leapt 22% in Hong Kong.
Starting to worry
The change shows “how worried policymakers have become about the markets, real estate and the economy”, says Bill Bishop in the Sinocism newsletter. The announcement is clearly a signal that regulators “don’t want markets to go down more”. Still, investors shouldn’t bet on a complete end to a crackdown that has hit the likes of Alibaba and ride-hailer Didi. This may mark “more of a calibration to stabilise things” rather than a “real shift”.
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China’s “techlash” has led to “colossal value destruction” for investors over the past 18 months, says The Economist. “Liu’s statements are the strongest signal so far” that this pressure is ending. That may mark a bottom, but it won’t reverse the losses that investors have already sustained. Shares in tech giant Tencent gained $112bn in two days, but are “still down by around half” since their early 2021 peak.
Geopolitics also looms large. “Something big is happening in global capital flows”, says Robin Brooks of the Institute of International Finance. “China… is seeing big capital outflows, while the rest of [emerging markets] gets inflows.” That has “never happened before on this scale and reflects asset managers looking at China in a new light after Russia’s invasion of Ukraine”. The rush to exit Russian assets is making some reconsider Chinese holdings as well.
Optimists are hoping that “last year’s bruising clashes between the state and the stockmarket” are over, says Leo Lewis in the Financial Times. Previous “confidence-boosting” measures like this, such as after the global financial crisis, have turned markets around before. But those happened in an era “where globalisation still felt fundamentally unstoppable”. Today, talk of de-coupling and shorter supply chains makes that seem less certain. Chinese markets will increasingly be a “proxy for investors’ views on the future of globalisation”.
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