Time for a new breed as bulls become bears | South China Morning Post
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Zhu Rongji

Born on October 1, 1928 in Changsha, Hunan, Zhu Rongji mayor and party chief in Shanghai between 1987 and 1991, before becoming vice premier and then the fifth premier of the People's Republic of China. He held that position between March 1998 and March 2003. He is known for taking a tough stance against corruption in the government and pushing difficult reforms of the state sector. 

Time for a new breed as bulls become bears

PUBLISHED : Friday, 20 November, 1998, 12:00am
UPDATED : Friday, 20 November, 1998, 12:00am

Anyone trying to sell a fair or upbeat story on the mainland these days will more often than not come up against a wall of suspicion and cynicism. To be a bear these days seems more fashionable than being a bull.

This is due in part to the backlash from the irrational euphoria foreign investors and fund managers felt three or four years ago, when any share offer or investment opportunity linked in any way to the so-called Big China Story was grabbed indiscriminately.

Almost everyone - from retail investors to the bigwigs running the top companies - was a bull rushing for a piece of the action in one of the world's fastest-growing economies.

China was the flavour of the year, and not to have a taste of it was considered backward.

Few questions were raised about the reliability of its economic numbers and absence of a robust system of rule of law.

If there were doubts, they were often pushed to the back of one's mind.

So, not surprisingly, initial H-share offers were excessively over-subscribed, followed later by the mad scramble for red chips.

Irrational euphoria is, of course, not sustainable, and the Big China Story soon turned out to be a disappointment for those who did not do their homework - and there were many.

They were burnt, and burnt badly. But the rudest shock came from the sudden closure of the Guangdong International Trust and Investment Corp (Gitic), which shook foreign-investor confidence to the core.

To bankers who had lent to Gitic, the closure was understandably unnerving.

But to those looking at it rationally, it reflected the central government's political resolve to clean up a scandal-ridden industry which, because of its high irregular external borrowing, could send shockwaves through the entire sector.

Indeed, the many measures taken by Premier Zhu Rongji's government to rationalise the financial sector - such as the reorganisation of the financial and securities regulatory bodies to improve monitoring, the reclassification of loans to better reflect asset quality, and the restructuring of the central bank to remove political interference by local leaders - were intended to develop a safe and stable foundation.

The reforms were credible and should be welcomed because they were taken voluntarily - unlike the cases of Thailand, South Korea and Indonesia, which had the International Monetary Fund insisting on the measures in return for rescue packages.

True, what Mr Zhu is doing involves a high degree of risk and, if mismanaged, could trigger serious political consequences for him and his backer, President Jiang Zemin. But to leave the financial system intact is even riskier, as it is bound to end in disaster.

Foreign investors, swayed by Gitic's closure among other setbacks, have swung to the other extreme: they doubt upbeat forecasts or official economic figures, in contrast to their acceptance of all wonderful predictions a few years ago.

That would be a mistake.

True, the mainland remains a hard nut to crack, but some have done so. True, again, the reliability of mainland statistics remains in doubt, but they remain the only regular source of vital data for analysts.

The trick is not to concentrate on the absolute figures, but look for the underlying trends. That way, one is in a better position to read the economy or particular industry and to avoid being an indiscriminate bull or bear.


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