China makes strong vow to ease crackdowns after market turmoil

The Financial Stability and Development Committee meeting concluded there is a need to 'boost the economy', in the first quarter and promised investors relief on several regulatory fronts

China has made a strong push to stabilize affected financial markets, promising to ease a regulatory crackdown, support property and technology companies and stimulate the economy.

The government should “actively implement policies that benefit markets,” according to a meeting of China’s top fiscal policy committee chaired by Vice Premier Liu He, the country’s top economic official. The vow to take into account investors’ interests comes after a sell-off in domestic shares due to fears over growth risks and tough regulation of real estate and internet companies.

The meeting offered investors re-assurance that a failed crackdown on Internet companies is nearing its end and that the government will prevent a disorderly collapse in the property market. China’s bank regulator said after the meeting that it would support insurance companies to increase investment in stock markets.

Stocks have increased after the announcement. The Hang Seng China Enterprises Index jumped 13% in the close in Hong Kong, the most since 2008, recovering nearly half of this year’s losses. The CSI 300 index of mainland shares climbed 4.3%.

“The statement addressed so many issues on various fronts, which is really rare,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “Celloffs have tended to be self-fulfilling in part because of the government’s lack of response,” and one goal of the government is probably to break the inertia and stabilize market expectations, he said.

The statement signals an adjustment after months in which Chinese capital markets have been battered by government policies ranging from a squeeze on financing for property developers to a sweeping regulatory campaign aimed at internet giants like Alibaba Group Holding and Tenent Holdings. Sales have deepened in recent days, as the rising energy price caused by Russia’s invasion of Ukraine and a surge in Chinese coronavirus cases have raised a question about Beijing’s ability to meet its economic growth target.

The meeting of Financial Stability and Development Committee concluded that there is a need to “boost the economy,” in the first quarter and promised investors relief on some regulatory fronts. Monetary policy will be proactive in the quarter and new loans will grow appropriately, it added.

The announcement came shortly before an expected interest rate increase by the Federal Reserve, which Chinese officials said was risky to confirm capital outflows. Further monetary easing by China at the same time as the Fed is tightening may block the outflows but this is a risk policymakers may have to take to support the domestic economy.

Wednesday’s announcement offered the strongest explanation after that Beijing was loosening its grip on Internet platforms, saying that efforts to “rectify” Internet platform companies should be completed “as soon as possible.” It also promised investors more policy stability, after a year when markets were repeatedly surprised by sudden announcements about regulatory reform.

A series of policy moves in the last year targeting some of the country’s most valuable companies have battered investors, with Beijing warning that platform operators could abuse their power and undermine competition and that real estate giants have destabilizing the economy .

In particular, regulators have caught up with highly-leveraged real-estate firms such as China Evergrande, the leader of e-commerce Alibaba Group Holding Ltd., which eventually paid a record fine, and the giant of food delivery Meituan, which is Forced to lower the fees. It charges restaurants for delivery and improves the treatment of its drivers. China’s private tutoring industry is largely shut down as part of a drive to reduce education costs.

“Any policy that has a significant impact on capital markets should be coordinated with financial management departments in advance to maintain the stability and consistency of policy expectations,” the Finance Committee conference concluded, according to a state media report.

Property slump

On the deep fall in China’s housing market that began last year and pushed large property developers close to collapse, the statement called for implementing an effective plan to prevent and address risks around the developers, as well as policies to help the Industry transformed into a “new development model.”

China’s banking and insurance regulator said in a statement after the meeting that it would lead trust, wealth management and insurance companies to stabilize capital markets, support insurance companies to increase stock investment in high-quality companies and help property developers acquire real estate projects from China. Other developers who are having financial difficulties.

Since last week, Chinese stocks listed in the US. It. Have sold off after Washington lifted the stakes in a forcing dispute over auditing standards by raising the prospect that some Chinese companies would be delisted. The statement promised that China has made positive progress in talks over Chinese companies listed in the US.

China’s yuan rose by as much as 0.43% to 6.3421 in onshore trading after the government’s statements, and traded most of its loss in the last two days. The news helps the yuan as capital outflows seen in March could come to a halt if losses in China’s equity market finish, says Alvin T. Tan, head of Asia FX strategy at Royal Bank of Canada.

At the annual parliamentary session earlier this month, Beijing signaled that it was putting some long-term reforms on hold to focus on economic growth. Stabilizing the economy is a political imperative for Beijing ahead of a ruling Communist Party meeting this fall, where President Xi Jinping is expected to seek a third term as party leader.

Policy makers have said that this year’s ambitious economic growth target of around 5.5% would be achieved mainly through looser fiscal policy, with officials remaining haughty about the property market and debt growth.

“There was fear that Beijing does not care much about financial markets, and the meeting shows that this is not the case. It looks serious,” said Chen Long, an economist at Beijing-based Consultancy Plenum. Do things quickly. If nothing happens in the next one or two weeks, markets will start to think this is fake.

The government statements did not mention Russia’s invasion of Ukraine, which brought a peak in oil prices and fears among investors that Chinese companies might be subject to sanctions. Coronavirus controls should be coordinated with economic development, the meeting said – reiterating official statements that China’s “dynamic zero” covid policy will be tweaked to prevent business closures, even as the nation struggles to contain the largest outbreak in two years.

Authorities have made some changes to this approach in recent days, allowing the use of rapid tests to confirm cases and saying that patients with mild or no symptoms can quarantine in designated facilities instead of being transferred to hospitals.

It is not the first time Liu he has tried to calm investors fears after a market sale. In 2018, he gave an interview to State Media, saying that Beijing valued the stock market, which helped calm a sale of equity. However, the statement did not lead to any large-scale stimulus.

Other points from the financial committee meeting:

* Regulation of internet platform companies should be “standardized, transparent and predictable”

* Financial institutions should “consider the big picture” and firmly support the development of the real economy

* Long-term institutional investors are welcome to increase shareholdings in Chinese companies

* Beijing and Hong Kong should strengthen communication over the stability of Hong Kong’s financial markets

* Continuing economic development is the first priority of the Chinese Communist party

* The economy should operate in a reasonable range and the operation of capital markets should remain stable