Share on facebook
Share on twitter
Share on telegram
Share on whatsapp
Share on linkedin
Share on print
Share on email

Risk Watch: Call for PBoC to Buy A-shares Comes as Confidence in Stock Markets Fall

◎ Major shareholders in China could be thinking of or taking steps to dump newly unrestricted shares in the wake of a worsening economy and slumping market confidence.


On Jan. 8, the official China Securities Journal ran an article titled “The Good Prospects of the PBoC Holding Domestic Stock” by Dongxing Securities lead economist Zhang Anyuan. The article suggests that the central bank should own 1.58-1.78 trillion yuan (about $233.17 billion to $262.68 billion) worth of “suitable” domestic equity assets, and cites the example of Japan’s central bank holding local stock assets. Zhang Anyuan’s article sparked intense discussion among scholars and experts.

The backdrop:
Jan. 2: At least 37 Chinese companies announced that they are selling company-held shares on the first trading day of the year.

Jan. 4: China’s National Enterprise Credit Information Publicity System showed that Alibaba co-founders Jack Ma and Simon Xie no longer held equities in Zhejiang Taobao Network Co. Ltd., and had become the sole shareholders of Hangzhou Yuxi Investment Management Co. Ltd. On Jan. 7, Alibaba Group issued a denial that Ma and Xie had made the previously mentioned moves.

Jan. 9: The semi-official 21st Century Business Herald reported that January 2019 will see the biggest wave of restricted shares becoming unrestricted this year. In total, 36.77 billion restricted shares worth 266.172 billion yuan are set to be unrestricted.

The Shenzhen Stock Exchange issued a letter of concern to Ningbo GQY Video & Telecom Joint-Stock Co. Ltd. requesting a supplementary explanation about the company’s earlier announcement that its actual controllers are intending to transfer 68.2 percent of Ningbo GQY shares to Ningbo Gaosi Investment Co. Ltd. for 784 million yuan. Chinese media reports say that the actual controllers of Ningbo GQY are Guo Qizhen and Yuan Xiangyang, and that they had cashed out a total of nearly 1.3 billion yuan worth of company shares from July 2013 to the present.

Jan. 10: According to Shanghai Stock Exchange supervision work documents, the senior management of listed company Shanghai Zhongyida Co. Ltd. has been “collective out of contact” since Jan. 1, 2019. The Shanghai Stock Exchange has requested that Shanghai Zhongyida contact the exchange within 10 trading days or its trading will be suspended. Recently, the company’s stock, which has been largely traded on the margins, broke its price daily upper limit seven times in the last eight trading days and saw its value rise by over 40 percent.

Our take:
Major shareholders in China could be thinking of or taking steps to dump newly unrestricted shares in the wake of a worsening economy and slumping market confidence. This phenomenon seems to have prompted the Chinese Communist Party to float a trial balloon about getting the PBoC to rescue the markets.

1. Panic has sunk in the Chinese markets with the deterioration of the economy and poor prospects. China’s A shares dropped to four-year lows in the first couple of trading days of 2019.

If the CCP is unable to rescue market confidence before the Lunar New Year, the stock markets are in danger of collapse. Market collapse would in turn trigger financial risks, and the regime would be endangered. It is in this context that the idea of the central bank buying domestic stocks is being floated.

2. We previously analyzed that China is facing economic problems because corporate tax is suffocatingly high. The CCP regime, however, cannot enact substantial tax cuts to save the economy without weakening its grip on power (tax dollars are needed for “stability maintenance” works, keeping a bloated bureaucracy loyal to the Party, etc.). Indeed, the CCP’s recent so-called “tax reduction” measures end up ultimately increasing the tax burden for companies.

3. We believe that article carried in the China Securities Journal about the PBoC buying and holding over a trillion yuan of domestic stock could be a CCP trial balloon to test market reaction to the move. If there are no strong opposing voices, the CCP could go ahead and introduce a policy to make the move a reality.

4. While Chinese investors may want the central bank to rescue the markets, we believe that the move is at best a short-term “solution.” Per CCP characteristics, the PBoC will end up becoming an untrustworthy “big banker” in the casino-like Chinese stock markets. In the long-run, a majority of investors can expect to lose with the central bank’s entry into the markets.

"I’m a very happy, satisfied subscriber to your service and all the deep information it provides to increase our understanding. SinoInsider is profoundly helping to alter the public landscape when it comes to the PRC."
James Newman, Former U.S. Navy cryptologist
“Prof. Ming’s information about the Sino-U.S. trade war is invaluable for us in Taiwan’s technology industry. Our company basically acted on Prof. Ming’s predictions and enlarged our scale and enriched our product lines. That allowed us to deal capably with larger orders from China in 2019. ”
Mr. Chiu, Realtek R&D Center
“I am following China’s growing involvement in the Middle East, seeking to gain a better understanding of China itself and the impact of domestic constraints on its foreign policy. I have found SinoInsider quite helpful in expanding my knowledge and enriching my understanding of the issues at stake.”
Ehud Yaari, Lafer International Fellow, The Washington Institute
“SinoInsider’s research on the CCP examines every detail in great depth and is a very valuable reference. Foreign researchers will find SinoInsider’s research helpful in understanding what is really going on with the CCP and China. ”
Baterdene, Researcher, The National Institute for Security Studies (Mongolian)
“The forecasts of Prof. Chu-cheng Ming and the SinoInsider team are an invaluable resource in guiding our news reporting direction and anticipating the next moves of the Chinese and Hong Kong governments.”
Chan Miu-ling, Radio Television Hong Kong China Team Deputy Leader
“SinoInsider always publishes interesting and provocative work on Chinese elite politics. It is very worthwhile to follow the work of SinoInsider to get their take on factional struggles in particular.”
Lee Jones, Reader in International Politics, Queen Mary University of London
“[SinoInsider has] been very useful in my class on American foreign policy because it contradicts the widely accepted argument that the U.S. should work cooperatively with China. And the whole point of the course is to expose students to conflicting approaches to contemporary major problems.”
Roy Licklider, Adjunct Professor of Political Science, Columbia University
“As a China-based journalist, SinoInsider is to me a very reliable source of information to understand deeply how the CCP works and learn more about the factional struggle and challenges that Xi Jinping may face. ”
Sebastien Ricci, AFP correspondent for China & Mongolia
“SinoInsider offers an interesting perspective on the Sino-U.S. trade war and North Korea. Their predictions are often accurate, which is definitely very helpful.”
Sebastien Ricci, AFP correspondent for China & Mongolia
“I have found SinoInsider to provide much greater depth and breadth of coverage with regard to developments in China. The subtlety of the descriptions of China's policy/political processes is absent from traditional media channels.”
John Lipsky, Peter G. Peterson Distinguished Scholar, Kissinger Center for Global Affairs
“My teaching at Cambridge and policy analysis for the UK audience have been informed by insights from your analyzes. ”
Dr Kun-Chin Lin, University Lecturer in Politics,
Deputy Director of the Centre for Geopolitics, Cambridge University
" SinoInsider's in-depth and nuanced analysis of Party dynamics is an excellent template to train future Sinologists with a clear understanding that what happens in the Party matters."
Stephen Nagy, Senior Associate Professor, International Christian University
“ I find Sinoinsider particularly helpful in instructing students about the complexities of Chinese politics and what elite competition means for the future of the US-China relationship.”
Howard Sanborn, Professor, Virginia Military Institute
“SinoInsider has been one of my most useful (and enjoyable) resources”
James Newman, Former U.S. Navy cryptologist
“Professor Ming and his team’s analyses of current affairs are very far-sighted and directionally accurate. In the present media environment where it is harder to distinguish between real and fake information, SinoInsider’s professional perspectives are much needed to make sense of a perilous and unpredictable world. ”
Liu Cheng-chuan, Professor Emeritus, National Chiayi University
Previous
Next