China has found generating breakneck economic growth far easier than resuscitating its listless A-share stock markets. More vexing is that its H shares in Hong Kong have soared, while A shares listed on the mainland are shunned by investors still burned by share price manipulation, accountancy frauds and a botched government plan to unload state shares.
The State Council says it has some new stock market reform plans, but has it learned from past mistakes? Mistreat the fickle equity market and it will break down.
Investors will thank you for good companies coming to market, but they might not be the ones you want to list. Offload your junk on them and they will not return.
Such was the outcome of the plan to sell a large portion of state-owned shares in 2001.
While the result of shoddy state-directed lending is limited to non-performing bank loans, the damage caused by similar state-directed intervention in the equity market is worse. Not only do shareholders suffer, but the equity funding tap for everyone else is shut down as confidence evaporates.
So recent announcements that China is seeking to move its equity markets in a 'market-orientated manner' and withdraw from its earlier direct intervention should appear welcome.