IIn a very rare move, China’s government tried to bolster investors, who had been hit by heavy losses, with verbal assurances and stock purchases by sovereign wealth funds on Wednesday.
Since the beginning of the week, the markets in Shanghai and Hong Kong have seen a price slide that many observers described as “historic” and which brought back memories of the 2015 stock market crash. The American investment bank JP Morgan had advised against investing in Chinese tech stocks for a period of six to twelve months. Shares in the Chinese Internet company Alibaba alone hit a new low of 71.35 Hong Kong dollars on Tuesday, which many had previously thought impossible. At its peak in fall 2020, the stock was priced at HK$298. Since the beginning of the year alone, the stock of the former favorite on the stock exchange and model company from mainland China’s Hangzhou has fallen by more than a quarter.
However, on Wednesday, the value recovered, similar to other Chinese tech stocks that posted notable gains. The paper from Alibaba has meanwhile increased in value by 24 percent, that of the Internet group Tencent by 23 percent. Investors in China rejoiced that their losses had almost been recouped. The price increases are mainly due to government intervention.
State funds for price recovery
Even during the bear market, many observers were wondering where China’s notorious “national team” was, made up of sovereign wealth funds and other state-affiliated financial market players who seek to support prices through purchases in times of crisis. Vice Premier Liu He, who has been entrusted with controlling the economy by President Xi Jinping, had assured that the government would use stimulus measures to boost the economy in the first quarter of the current year. There will also be political steps for the “good of the market”. This had ensured confidence on the stock exchanges.
Many things had previously caused the pessimism: the war in Ukraine and the news that, according to the American account, China had declared its willingness to supply arms to Russia, had caused fears that the Chinese economy could be sucked into the maelstrom of Western sanctions . At the People’s Congress, Premier Li Keqiang issued the lowest growth target in decades with a value of 5.5 percent. Many economists believe that given the recent lockdowns in economic centers such as Shanghai and Shenzhen, even this low value can hardly be achieved. Many banks had forecast zero growth, especially for the first quarter, given the fact that large parts of the country are again under quarantine after increased virus infections and factories such as iPhone production by the Californian manufacturer Apple or Volkswagen plants are being closed in droves.
Market participants report that the government in Beijing has apparently not just contented itself with words to calm the price turbulence. State funds would have bought shares massively and thus driven prices up again. As a result, the Hang Seng index rose by 9 percent by the close of trading on Wednesday, making it its most successful day since 2008. At a government meeting, Vice Premier Liu He assured that the leadership would support the high-tech platforms she had criticized a lot how Alibaba wants to regulate in a less transparent way in the future.
It was precisely this lack of transparency, which is typical of China’s dictatorship, that caused prices on the stock markets to plummet. Out of the blue, the Beijing regulators, apparently at the behest of President Xi Jinping himself, began in autumn 2020 to attack tech companies such as Alibaba through state media and harsh interventions. To this day it is unclear whether the motive for this was actually concerns about monopolies in China’s Internet economy being too strong or Beijing’s attempt to bring the increasingly powerful private sector under the control of the Communist Party.
Last year, after the IPO of the driving service provider Didi in the USA, Beijing prohibited the company from any new business. This had raised fears that the government would prevent Chinese companies from going public in foreign countries in the future. Now the leadership has said it “supports” initial listings abroad. Market participants took this as an encouraging sign on Wednesday.
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