Door Hefboom Perkowski

Inzake economische kwesties, geef ik de Chinese overheid over het algemeen hoge tekens. Beginnend in 1978 met een economie die zijn mensen kon nauwelijks voeden, heeft de overheid China door 30 ongelooflijke jaren van economische hervorming en ontwikkeling begeleid.

Ik ben hier voor de helft die periode, geweest en persoonlijk getuigd hoe China zijn infrastructuur heeft uitgebouwd, gedereguleerd de één industrie na een andere, veel van zijn genationaliseerde bedrijven geprivatiseerd en globalisering door de van Wereldhandelsorganisatie lid te worden omhelste. Als resultaat van deze hervormingen en meer, is China nu de derde grootste economie in de wereld, en iedereen wacht om te zien wat de volgende 30 jaar zal brengen.

Ondanks de indrukwekkende groei van de economie van China, niettemin, blijven de hoofdmarkten van het land geplakt in een vroegere tijd en niet de rol gespeeld zij in het steunen van economische ontwikkeling zouden moeten hebben. Dat is een schande omdat het een enorme verloren kans voor China vertegenwoordigt. De goed ontwikkelde hoofdmarkten zorgen ervoor dat het kapitaal het meest efficiënt wordt gebruikt en dat de bedrijven en de mensen met de juiste ideeën juiste financiering krijgen, en de bedrijven en de mensen met slechte zaken voorstellen niet. Er is overvloed van kapitaal in China. Het land heeft enorme rijkdom over deze afgelopen 30 jaar gecre�ërd, en de Chinezen zijn spaarders. Problem is, there is no way to efficiently distribute those savings and provide investors with a range of investment opportunities from which to choose, and companies with the financing needed to grow their businesses.

Unlike developed markets such as the United States, it is very difficult to finance a business in China. Ask any entrepreneur. Other than bank loans based on working capital or secured by real estate, there is no debt market for small and midsized companies. The large state-owned companies seem to get all the financing they need or can possibly use, but smaller private companies and foreign invested enterprises must rely primarily on their own sources of equity capital to finance growth. The Shanghai and Shenzhen markets are merely extensions of policy lending with government regulators, not underwriters, deciding which companies can list their shares.

Rather than focus on ensuring a fair and transparent stock market, China’s stock market regulators seem to believe that their job is to ensure that share prices always go up. The Chinese government is understandably concerned about the 40 percent drop in share prices this year and the pictures of forlorn investors that accompany each story about the stock market, but that’s just the way the markets work. Share prices are a reflection of the sum total of investor sentiment on a wide range of issues: the health of the economy; inflation; prospects for corporate earnings; political factors and others. In some cases, a country’s stock markets may even be impacted by global events that are only indirectly related to its economy. If investor sentiment is positive, share prices will rise. If the opposite is the case, they will fall. There is nothing that regulators could or should do.

Chinese investors today are worried about a number of factors. Inflation is at its highest level in over 10 years. The government is trying to reign in the economy, calling into question prospects for corporate earnings. The economy of the United States, China’s largest customer, is slowing, and the yuan is appreciating against the dollar, both factors raising concerns about exports. Apart from economic fundamentals, the A share market soared last year to nose-bleed levels of valuation and no market anywhere only goes up. China’s A share market was overdue for a correction, and even at current levels is overpriced compared to global markets.

In this environment, stock market intervention by government regulators is counterproductive. Slowing IPOs and limiting big share sales, as the government is currently doing, works against the integrity of the stock market as a true market and only serves to weaken investor confidence. Moreover, intervention by the regulators raises false expectations that the government will somehow be able to reverse the market slide. Analysts last week called on Beijing to reduce the stamp tax, launch stock-index futures and allow margin trading.

Cutting taxes on stock market transactions is positive because it reduces the friction costs of investing. However, reducing friction costs will only increase the volume of share trading, not necessarily cause share prices to rise. Likewise, allowing investors to buy stocks on margin and creating a futures market may be healthy developments for the market, but they will only serve to increase market volatility. When investors are positive, shares may go up faster, but when they are negative, share prices may decline even faster than they are now.

As stock market regulators in the United States and other countries with well-developed capital markets have found, sometimes markets just want to go down. In all but the most extreme cases, it’s best to let them do just that.

Jack Perkowski, Managing the Dragon
Chairman and Chief Executive Officer of ASIMCO Technologies