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Investors stand in front of an electronic board showing stock information at a brokerage house in Shanghai on February 15, 2016. Photo: Reuters.

China’s tech surge: regulator chimes in with market-friendly policies to cheer beleaguered stock investors

  • China will encourage publicly traded companies to buy back their shares and money managers to invest in their own funds
  • The government will continue to widen access to the capital market and maintain Hong Kong’s market stability through stronger cross-border collaboration, CSRC said
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China will encourage publicly traded companies to buy back their shares and money managers to invest in their own funds, offering investor-friendly policies to bolster the world’s second-largest capital market amid an unprecedented rout.

The government will continue to widen access to the capital market and maintain Hong Kong’s market stability through stronger cross-border collaboration, the China Securities Regulatory Commission (CSRC) said on its website late Wednesday.

The CSRC’s statement came hot on the heels of a Wednesday meeting chaired by China’s economic tsar Liu He, in which he pledged to uplift the market and the economy.

Most importantly, the vice-premier asked that market-sensitive regulatory policies to be “coordinated with financial regulatory authorities in advance” to manage market reactions and expectations, according to the official readout of the meeting by Xinhua News Agency.
China’s vice-premier Liu He during trade talks with then US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer at the offices of the US Trade Representative in Washington, DC, in 2019. Photo: EPA-EFE
The instruction by Liu and CSRC’s follow-on policy sparked the biggest rally in Chinese tech stocks on record, undoing the worst two-day rout in onshore equities since 2015 earlier this week after JPMorgan Chase called the technology sector “uninvestable.”

“Short-term swings haven’t changed and will not change the healthy development in the long run,” the CSRC said. “The capital market has a solid foundation for smooth operations. Going forward, the CSRC will put out all the stops to ensure market stability by deepening and specifying work measures.”

China’s stock rout reflects self-fulfilling fear amid cries for support

Since the start of the year, China’s economy has continued to recover, with major indicators in a reasonable range,” the regulator said. A variety of stabilising measures have been put in place and listed companies’ earnings have steadied and improved, it added.

The Shanghai Composite Index rose 1.4 per cent at the close on Thursday. The market plunged 8 per cent over Monday and Tuesday this week, the worst back-to-back losses since August 2015, according to Bloomberg data. The Shenzhen Component Index climbed 2.4 per cent.

Shenzhen, China’s biggest technology hub, is under a two-week lockdown while Shanghai, the financial capital, has shut schools, some office buildings and residential complexes, while encouraging residents to work from homes, to contain the virus.

To reverse the bearish trend and sustain the latest rebound, investors will need to see a meaningful easing of regulatory crackdown and more monetary loosening, according to Meng Lei, a strategist at UBS in Shanghai. Concerns about US audit inspection on Chinese companies also need to be resolved, he added.

“Overall, we have already seen some positive policy signals, and the launch and implementation of specific policies and measures is likely to attract foreign investors back to the A-share market,” he said.

In other areas, the CSRC said it will push institutional investors to focus on long-term and value investing, and cooperate with other departments to defuse the risk in the property market, according to the statement. It will keep the door open for companies to list overseas, and engage its US counterparts on accounting issues, it said.

In the meeting of the Financial Stability and Development Committee chaired by Liu, China appears to have taken investors’ concerns about sporadic policy actions that have unnerved financial markets over the past year.

The committee said authorities should respond to issues that draw attention from the market in a timely manner, adding that “any policy that will have a significant impact on the market will need to be coordinated within financial regulators beforehand for better expectation management.”

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