Chinese regulators are expected to gradually ease their crackdown on sectors from technology to real estate after Vice Premier Liu He vowed to stabilize battered financial markets, but investors are also being urged to exercise caution as policy uncertainty remains high .
According to a high-level meeting yesterday, government ministries must now consult financial regulators – including the Financial Stability and Development Council (FSDC) headed by Liu Xiaobo – before issuing policies deemed to have a “significant impact” on capital markets.
The vice-premier, who is President Xi Jinping’s closest economic adviser, has addressed issues ranging from preventing risks in the real estate sector to supporting Chinese companies listed overseas. His pledge to prioritize economic development led to a rebound in the Hang Seng Technology Index, which rose 22% on Monday and another 7.8% on Tuesday. Many of the index’s constituents, such as e-commerce giant Alibaba and food delivery platform Meituan, rebounded more than 25% from an earlier sell-off sparked by regulatory concerns, the situation in Ukraine and concerns about delisting U.S.-listed Chinese companies
“At least this year, all policies revolve around the bottom line of maintaining stability,” said Shen Meng, director of Beijing-based boutique investment bank Chanson Capital, adding that key industries such as manufacturing, logistics and technology could see tax cuts.
Hong Hao, managing director and head of research at BOCOM International in Hong Kong, said there could be some adjustments, such as faster mortgage approvals, more loans to property developers and avoiding the inclusion of more cities in the country’s property tax pilot , which exacerbated the economic downturn, entered the real estate market after taking the lead in Shanghai and Chongqing.
Meanwhile, the government can boost tech companies by partnering with them on cloud-based smart city projects, said Cui Chenyu, a Shanghai-based senior analyst at research firm Omdia. But she does not expect regulators to loosen their grip on online games, which have not issued any new licenses since late last year. The long hiatus is designed to control content and protect minors from addiction.
“The trend toward tighter regulation of online gaming and video streaming may not change,” she said.
Another issue of concern is the internal coordination of the various government departments in the country. Feng Chucheng, a partner at Beijing-based consulting firm Plenum, said that historically, the FSDC, led by Vice Premier Liu, had no jurisdiction over the now almighty China Cyberspace Administration.
The latter has released new data rules to lead investigations into ride-hailing giant Didi Global, requiring every Chinese company with more than 1 million users to conduct a security review before listing overseas. Just Monday, the CAC dispatched a team to social media company Douban after discovering “serious online chaos” on the company’s platform.
“Liu He suggested that coordination is a good thing, but the risk is that it is difficult to execute,” Feng said. “As the mandate is updated and expanded, agencies such as the CAC and MIIT (Ministry of Industry and Information Technology) will encounter bureaucratic resistance and obstacles to submit each policy recommendation to the FSDC for coordination.”
And in the current situation, some are just urging investors not to be too optimistic and to stay on the sidelines until more clarity emerges.
“Traditional metrics may indicate generational opportunities in terms of entry points, but buying the dips seems like a fool’s errand right now,” said Brock Silvers, chief investment officer at Kaiyuan Capital in Hong Kong. There will be time to get back into Chinese equities, but not today.”