Top financial regulators expected to discuss better communication skills during ‘two sessions’
Beijing’s increasingly centralised decision-making process has created contradictions and confusion, analysts say
China’s top financial officials will be under unprecedented pressure to discuss how to send clearer signals to the market when they attend the “two sessions”, starting this week, although economic growth will remain the key focus.
The annual meetings of the National People’s Congress (NPC), starting on Saturday, and the Chinese People’s Political Consultative Conference (CPPCC), starting on Thursday, were not designed to be platforms to discuss capital market issues, said independent financial commentator Brett McGonegal, but China’s decision makers were under pressure to address the unusual volatilities stemming from its markets that had disturbed investment at home and abroad since last year.
Alex Wolf, emerging markets economist with Standard Life Investments, said more uncertainties had been spawned by mainland China’s financial regulators since last year, as the “decision making process become more centralised”.
“When people become uncertain about what is happening and confused about policy directions, they tend to over react, particularly on negative messages,” he said.
“They (top decision makers) may need to create a super regulator, regardless of whether it’s led by the central bank or in another format, as discussed after the stock market rout in summer, to coordinate different commissions, and give consistent orders.”
The Chinese regulators, from the securities market watchdog to the central bank, sent confusing and contradictory messages to the global investment community last year.
The regulators appeared to be in a spin, rushing between the stock and currency markets to hold up the tent and calm nerves, refuting rumours and curbing speculation, and shifting between talk of market-based pricing when pushing forward with reform and heavy-handed intervention when markets headed south.
A rally of more than 130 per cent in the mainland’s benchmark stock index between September 2014 and mid-June was touted by state media as a bull run driven by China’s reforms which could generate a new growth engine for the economy and companies.
However, talk of market reform was put on the back burner after the index crashed by more than 40 per cent in the following two months, leaving retail investors bewildered.
The cabinet led by Premier Li Keqiang hoped to ease approval procedures for prospective start-ups to float initial public offering (IPO) shares, and the NPC cleared the way for the China Securities Regulatory Commission to relinquish responsibility for vetting listing applications.
“An about-face would be more than a ditched reform effort,” said Yu Haipeng, a retail investor in Shanghai. “We need the regulator to tell us what exactly are the clues and logic for developing the market.”
According to the premier’s script, market-based reform of the securities industry would widen cash-starved technology firms’ access to much-needed funds to pursue innovation and vie for market share as a way to expand domestic consumption.
Under the reform, companies would find it easier to go public as the stock exchanges would assess the truthfulness of their listing documents before granting them the go-ahead to raise funds.
“All the talk of reforms turned out to be empty promises,” said Davis Zhang, an entrepreneur in the car battery business who needs funds to make the products more environmentally friendly. “The regulators leave themselves red-faced. It’s just a daydream that they could effectively shore up investor confidence.”
On the currency market, China’s yuan dropped sharply in mid August and early January after the active weakening of the PBOC’s daily fixing rate indicated the authorities were willing to allow corrections to devalue the overvalued currency.
The PBOC then stepped in with heavy buying of yuan and selling of US dollars on both occasions, after expectations of devaluation strengthened and capital outflows intensified.
That went against pledges by the premier and senior PBOC officials that Beijing would let the yuan float more freely, before and after the currency was admitted to the International Monetary Fund’s elite Special Drawing Rights (SDR) basket in December.
PBOC governor Zhou Xiaochuan has made two public statements since the January intervention, reiterating there was no basis for continued devaluation of the yuan.
“It seems China has tightened restrictions on capital outflow and has tended to muddle through until the depreciation of the yuan eases, but that depends largely on how the US economy goes,” Wolf said. “If the US dollar is strengthened by a firmer economy, China’s yuan will be once again under mounting devaluation pressure.”