Transparency from China over stock market rescue the only way to restore confidence
The focus at the latest meeting of G20 finance officials was very much on China, amid global market volatility and concerns about growth driven by uncertainty about China's expansion. It was their first meeting since a Chinese stock market collapse, a yuan devaluation and botched official attempts to prop up share prices sent shockwaves around the world.
The lack of transparency in China's policymaking process has prompted calls for Beijing to ensure better communication with markets to shore up confidence. The response at the G20 has left us none the wiser. By all accounts Chinese officials reassured their counterparts that the devaluation was aimed at a more market-determined exchange rate and that the bursting of the stock bubble was complete, implying that opaque meddling was over for the time being at least.
But transparency remains the key to confidence. Last week's spectacular military parade was aimed at boosting confidence in the Chinese Communist Party to lead the country forward. But it remains shaken not only by the chaotic market rout but also the scandal of initial local efforts to cover up and underplay the deadly Tianjin port chemical explosion. Mainland officials need to reveal who made the decisions to devalue the yuan and support the stock market and why. It has never been made clear where more than 1 trillion yuan came from to support the market. Was it the Ministry of Finance or the central bank?
It is not as if they lacked a model precedent for this kind of intervention. It is to be found in Hong Kong less than 20 years ago, when officials defended the Hong Kong dollar against an attack by speculators during the Asian financial crisis. To drive them away, the government invested in the market in a disciplined operation confined to blue chips listed in Hong Kong and led by the city's top financial officials.
Reports from the mainland, moreover, raise questions about the companies supported by rescue funds. The authorities have important questions for officials and stockbrokers involved. How and why did they make these investments? Why invest in this company and not that one? The public needs to know the answers. Officials should come clean instead of creating more speculation by blaming rumours and arresting hundreds of people for spreading them. The world has legitimate concerns about the way events with wider impact unfold in China. If its own people are to feel confident in the party they need to know it is making informed decisions.