THE PECKING ORDER of the priorities laid out by the Financial Stability and Development Committee (FSDC), China’s top financial policy committee, on March 16 is probably stability, economic stimulus and greater clarity on the regulation of the platform internet companies.
The readout from the meeting, chaired by Vice Premier Liu, also represents a short-term order of business in response to some unexpectedly gusty economic headwinds rather than a long-term change of policy course — an effort to stabilise financial markets and bolster investor confidence.
There is nothing in the reports of the FSDC’s deliberations to suggest private companies will not have to align themselves with government policy objectives or that current policy objectives have changed materially.
On the contrary, financial institutions were told to ‘consider the big picture’ and firmly support the development of the real economy, while regulators were told to complete the ‘rectification’ of the platform internet companies soon and with transparency, not to ease off them.
Nonetheless, investors in Chinese financial markets chose to see only light at the end of the tunnel, not the darkness surrounding them of late. The CSI 300 Index of mainland shares climbed 4.3%, while the Hang Seng China Enterprises Index jumped 13% in Hong Kong, recouping nearly half of its loss this year.
The China Banking and Insurance Regulatory Commission encouraged bank subsidiaries, asset managers and insurance companies to increase their investment in equities. The People’s Bank of China said the risks in the real estate market must be dealt with ‘under the principle of steady progress’. The finance ministry let it be known that there would be no further expansion of the property tax trial this year, regardless that President Xi Jinping in a speech last October indicated that a national property tax would be a centrepiece of ‘common prosperity’ .
Going even slower on deleveraging the real estate sector and introducing a property tax is a sign of how worried authorities remain about the housing market’s slump, the intractability of developers’ debt and their potential knock-on effects for the broader economy.
Despite regulators relaxing M&A funding rules and being more permissive towards developers taking on new debt, reversing the squeeze on financing for property developers, potential buyers have remained cautious. It has only really been state-owned banks buying up their clients’ distressed deals.
Reuters news agency has reported that in Shanghai, authorities told local state-owned enterprises (SOEs) to buy new bonds being sold by Greenland, a developer at risk of defaulting on a $500 million offshore bond in December. Reuters says this is the first known example of SOEs being ordered to participate this way in a bailout.
The war in Ukraine poses further challenges to an economy also dealing with an uncertain global economy, the effects of the most menacing surge in new Covid cases since the pandemic’s earliest days at the start of 2020, and the unexpected outflow of capital when other emerging markets are attracting it.
At the Two Meetings earlier this month, authorities made it clear that some long-term economic reforms would be put off for now in order to focus on growth this year. Even before then, at the Central Economic Work Conference at the end of last year, stability was the watchword.
Stability will matter more than ever in the Party Congress in the autumn. Investors should remember that their sentiment is also expected to fall in with that cause.