SINOWEEKLYPLUS

Decoding the promotion of 102 vice governors; signs of risk surface in the markets

SinoInsight 1
In the wake of China’s stock market plunge, listed companies started suspended trading; on Feb. 7 alone, 145 companies halted trading. Observers noted that the pledged shares of the listed companies’ major shareholders were close to the stop-out level. The current outstanding A-shares is estimated to account for nearly 9 percent of the total market capitalization.

OUR TAKE
The Chinese Communist Party is stepping up deleveraging efforts to safeguard against financial risks. The first wave of liquidity contraction has hit the bond and stock markets, and has already triggered a pledged share risk. A chain reaction could lead to severe consequences, such as the risk being transferred to the real estate and banking sector.

SinoInsight 2
During an internal work conference on Feb. 5 and Feb. 6, the People’s Bank of China (PBoC) identified nine key tasks for the year. The top priority task is keeping the yuan stable, and the second is safeguarding against financial risks.

OUR TAKE
China’s central bank usually prioritizes a stable currency policy above other policies. The task of safeguarding against financial risks, however, has been steadily climbing the PBoC’s list of priorities in recent years. In 2016, risks were the fifth top priority of the PBoC. During the 2017 work conference, safeguarding against risks came in at number three behind supply-side structural reform of financial services.

SinoInsight 3
There has been some speculation lately that Supreme People’s Court chief Zhou Qiang and Supreme People’s Procuratorate head Cao Jianming will step down at the Two Sessions and take up sinecure positions in the National People’s Congress.

OUR TAKE
The speculation has a good chance of being accurate; we wrote earlier that the domestic security and legal apparatus would be a focus of anti-corruption sweeps this year. Zhou and Cao are associated with the Jiang faction, and while they appeared to have endorsed Xi Jinping’s judicial reforms, the spirit of their actions often departed from what Xi proposed.

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