China Briefing | From Ant to Didi and private education firms, China stock rout is a mess of its own making
- Sudden clampdowns on tech and tutoring firms, announced with little to no warning or explanation, have spooked investors and sparked sharp sell-offs
- Chinese leaders should publicly communicate rationale, pay attention to market sentiment and give professionals latitude to get ahead of issues of global impact
Chinese retail and institutional investors had long been resigned to the not-so-secret arm twisting and ministerial diktats that often came out of the blue and caused wild market swings, whereas foreign investors looked on in bemusement.
Old habits die hard, and China’s secretive politics and utter failure to publicly and clearly explain policies that impact stock markets worldwide may not only cost investors billions of US dollars in losses, they will more importantly raise doubts about the country’s capital markets and its overall intention of opening up.
The perfect example is that a recent spate of intense regulatory moves – which started in November, when billionaire Jack Ma’s financial-technology conglomerate Ant Group was suddenly forced to halt a mega share sale, to the latest clampdown on after-school tutoring companies – have forced global investors to flee from China’s best stocks, including leading technology companies, while erasing more than US$1 trillion in market value by some estimates.
The sell-off has continued as there have been rising fears that Beijing could target more industries after its crackdown on technology and private education companies. Alas, the stock rout could have been greatly mitigated if Chinese officials were more transparent and better at managing their messages to markets at home and abroad. Instead, they looked clueless and appeared to show little consideration of how their forceful actions would impact stock markets and damage China’s reputation.