Chinese official clears monetary policies, platform management

Tourists admire the skyline view of Lujiazui area at the Bund in Shanghai, east China, Jan. 6, 2020. Photo: Xinhua

In what Chinese industry insiders compared to as a "fireside chats," China's top financial affairs watchdog pledged to bolster steady economic growth and capital markets in a meeting convened on Wednesday. The meeting had sent a fresh signal that the world's second-largest economy will not pull punches in shoring up its economy for the year despite the downward pressure.

The tone-setting meeting, which immediately prompted the central bank, the securities regulator and the forex regulatory body to provide detailed measures, underscores China's top decision-makers's "candid, calm, yet upbeat" note, amid the resurgence of novel coronavirus cases, protracted Russia-Ukraine tensions, and the West's recent concerted conspiracy to destabilize the Chinese economy and short Chinese shares, analysts said.

The meeting touched on various issues of great concern to both domestic and global investors, including the macro economy and the platform economy, illuminating a loose monetary policy China may push ahead and providing clarity on pessimism created by Western media, ranging from overseas institutions' rush to downgrade their forecasts of China's economic growth to a collective dump of Chinese shares.

A massive Chinese shares rally on Wednesday, following a week of selloffs, also manifested how the meeting has injected the much-needed optimism to the market. The swift bounce-back, a reflection of investors' restored economic confidence, is also underpinned by what economists pointed out as the Chinese leadership's sober understanding of the situation, robust economic fundamentals, a sufficient policy toolbox and an effective mechanism to handle the pandemic.

In a conference held by the Financial Stability and Development Committee under the State Council - China's cabinet - on Wednesday, Chinese Vice Premier Liu He pledged to address a number of concerns which snarled the market and partly led to a massive across-the-broad retreat of Chinese shares over the last two weeks, including macro economy, liquidity crisis, worries on platform economy supervision and a cooperation scheme with the relevant US regulators to tackle US-listed Chinese stocks.

"It was a frank talk not only to domestic investors and Chinese regulators of different divisions, but also a resounding rebuttal of Western pessimists and skeptics on the Chinese economy and other foreign forces' badmouthing of China's dynamic zero-tolerance approach," Tian Yun, a veteran macroeconomic commentator, told the Global Times on Wednesday.

Famed international investor Jim Rogers told the Global Times on Wednesday that he "fully expects the Chinese market" to recover in the long term. "I noticed the Western media exaggerated the situation. No matter what they say, you should know that they certainly don't understand China, and often exaggerate," he said.

Stability assurance

In order to revitalize the economy during the first quarter of the year 2022, the meeting stated that the monetary policy should be proactive and the newly added loans should remain moderate to support growth.

The wording sent a clear signal that China will move toward a looser monetary policy and prioritize maintaining "moderately abundant" liquidity in the market, a senior executive of an investment fund told the Global Times on condition of anonymity.

It also echoed a stability-centered path that Chinese leadership is pursuing this year, after Chinese Premier Li Keqiang conspicuously flagged a slew of economic downward pressure during the two sessions that ended last week and elaborated on the ample policy toolkit China has to circumvent potential impediments.

"This means a frontloading of monetary policy at a proper time. When market liquidity tightened, or investors are jolted, and when financial institutions are hungry for capital to elevate shareholdings, the central bank shall provide such liquidity support," Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Wednesday.

The meeting also stressed that the central government should introduce beneficial policies to shore up the equities market, while communicating with supervisory department in advance with any policy which may impact capital markets.

Analysts said that's another key takeaway from the meeting - a coherent and coordinated approach, which will minimize the contradictions between policies of different Chinese departments and eliminate potential side effects on macro-prudential supervision during the implementation.

"This guarantees a maximum effect when a raft of policies gears up at the same time, and the direction we're headed to does not deviate from the overall target," Tian explained.

Tian noted that Vice Premier Liu He, who chairs the Financial Stability and Development Committee meeting, also heads a number of economic departments. As such, he is able to "smoothen and fasten" the coordination.

In addition to the tone-setting message, the meeting also elaborated on China's governing philosophy over internet platforms and Chinese shares listed in the US, funneling much-needed confidence into a capital market that once recorded the largest slump in history.

China will also strengthen "market-oriented" rules for the platform economy. Efforts to "rectify" big platform companies will be done with transparent and predictable regulations as soon as possible, the statement said.

"The rhetoric emphasized Chinese regulators' governing tactics, flexibility and capacity. Supervision will continue, but not fixed and would accommodate the changing market," Tian said.

As misunderstandings and puzzles unnerve the domestic market and rumors that "regulating the internet platform and property will serve the national goal of cracking down on certain industries," it is necessary to communicate with the public and stabilize the sentiment, according to Dong.

He said that the context on the securities regulatory rift between Chinese and US securities also gives ordinary investors a gauge of the China-US financial interplay.

Chinese stocks rallied on Wednesday following Liu's comment. The Hang Seng Tech Index soared more than 22 per cent, while the benchmark Shanghai Composite Index bounced 3.48 percent.

Firm response to short-selling

Chinese observers said China's economy set off a strong footing in the first two months of the year, which shows that the fundamentals of the Chinese economy remain sound. But the rout in A shares and Hong Kong shares contradicts the fundamentals.

The explanations made by Liu were also considered to be a firm response to overseas investors' irrational operations toward Chinese shares, as well as their pessimism over China's economic prospects, as regulators have taken actions to clarify the government's policy direction and quash any rumors or speculations about the country.

Some experts believe there might be deliberate shorting behind such a large-scale foreign capital flight, though there are other reasons as well, such as the Chinese and US governments' disparity over the management of the US-listed companies.

"The ulterior motive of the West is to short Chinese assets and dents its economy. And they have chosen to launch the calibrated move at a time when both internal and external pressure is piling up, which they thought would amplify their chances of success," the above-quoted fund manager told the Global Times on Wednesday. He held that the statements from Chinese authorities smashed such a scheme.

He said China and the US are wrestling with each other over management of US-listed Chinese firms, which further led to a split in the financial markets. "Financial institutions have a direct motive to get windfalls [from shorting Chinese shares], while their ultimate intention is to coordinate with the US government's policy of launching a strategic crackdown on China," he said.

Tian also said that there are signs of overseas investors shorting Chinese shares, such as the active turnover of certain overseas exchange traded funds that offer short leverage.

As the 20th National Congress of the Communist Party of China is scheduled to be held during the second half of 2022, it is expected that foreign forces will wage a harsher war of words against the Chinese economy, Dong said. "More responses will be followed by the top Chinese leadership, either manifested in policy or other ways."

Aside from share shorting, there's a lot of pessimistic speculations about China's economy, with a number of overseas institutions moving to downgrade their forecasts of China's economy.

For example, Morgan Stanley cut its economic growth forecast for China to zero for the current quarter versus the final three months of 2021, while Goldman Sachs cut its 2022 forecast for China economic growth from 4.8 percent to 4.3 percent.

Most of them took such moves because they said China is having another wave of and seemingly more severe outbreaks of coronavirus cases, which would trigger a higher level of restrictions and affect the economy, particularly the consumption sector. A South China Morning Post report also noted that China's rising epidemic is causing fears about severe disruptions to the global supply chain.

However, observers insist that such "worries" are groundless, as China's economic fundamentals remain sound, as proven by the country's economic performance in the first two months of 2022, and the success of China's pandemic control model over the past two years.

As to the supply chain disruption fears, experts said that China has rich experience in handling coronavirus control and wouldn't overdo it to the extent of hurting manufacturing or supply chains.

"As far as I know, all the logistics-related companies, whether the delivery people or the ports, are operating normally. The supply chains won't be impacted even in areas where pandemic prevention measures are relatively harsh," Chen Jing, vice president of the Technology and Strategy Research Institute, told the Global Times.

There's no doubt China can achieve the 5.5 percent growth target, as China' strong fiscal policies would fuel momentum for investment growth, while global geopolitical tensions also made Chinese supplies very competitive, fueling exports growth, industry insiders said.