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China freer press might reboot markets

Chinese President Xi Jinping wants a press that's "strong, influential and credible". The last one of those attributes is the hardest to achieve, but the most important - and could even help reboot markets. Investors responded narrowly to plans to nurture heftier homegrown media groups. They have pushed up shares of state mouthpieces People.cn and Shanghai Xinhua Media by over 30 per cent since Xi's announcement on August 18.

But the development of a credible media could have a greater impact. Trustworthy reportage fosters better capital allocation by redressing the imbalance between what sellers know, and buyers don't. Take equities as an example. There were eight stock exchanges with a market capitalisation above 100 per cent of the host country's GDP in a 2013 study of 56 markets by the World Federation of Exchanges. All but one of those were in the top third of the World Press Freedom Index 2014, the Reporters Without Borders survey covering 180 countries. The combined market capitalistion of China's Shanghai and Shenzhen exchanges was a miserable 43.5 per cent of its 2013 GDP; for press freedom it ranks 175th.

Censorship is an issue, but corruption and standards are too. Attempts to curry favour with potential advertisers in a competitive market can distort stories as much as any censor. Low salaries encourage journalists to compromise and accept bribes. In the last two months alone, celebrity CCTV anchor Rui Chenggang was detained in a corruption probe, while e-commerce giant Alibaba claimed media tried to extort $300,000 to spike unfavorable coverage.

If a healthier capital market isn't incentive enough, a bigger services sector should be. Countries higher up the press freedom index tend to have more services income as a share of GDP, World Bank data shows. That makes sense. Without real insight, investors may be reluctant to purchase intangibles. This may explain China's national obsession with property and financial products with apparently guaranteed returns.

Xi could probably relax censorship, and appears keen to clean up corruption. But doing so might mean losing a grip on the political story. He likely admires another de facto one-party state: Singapore, whose relatively unfree media co-exists with large markets and a lively services sector. But to maintain Singapore's level of control on a China-like scale is likely to be too much of a task even for highly skilled policymakers. For healthy markets, openness still looks better.