What China’s financial governance tells international buyers
BEIJING, Sept. 5 (Xinhuanet) – Some global investors have apparently seen a “turn” in China’s economic policy recently.
In addition to several antitrust investigations and data security checks at the country’s largest internet companies, regulators have introduced strict regulations for the off-campus tutoring sector and stepped up food safety checks for popular grocery brands.
The intensive regulations in all sectors made these investors ask: Is there a change of course in China’s political direction? How will the regulatory steps affect the capital market and the economic structure of China in the long term?
Analysts at global financial services companies viewed the regulatory measures as part of China’s longstanding efforts to make growth more sustainable and inclusive, which will benefit regulated sectors and the economy as a whole over the long term.
In early 2021, the start of China’s new five-year plan, authorities stepped up regulatory oversight in a number of sectors.
In April, the country’s top market regulator pledged to step up antitrust enforcement, imposed record fines on tech giant Alibaba and launched antimonopoly investigations against internet giant Meituan.
Off-campus tutoring companies were curbed in July when central authorities issued guidelines restricting funding for for-profit off-campus training companies to ease the burden on students.
The country’s market regulators have also stepped up food safety violations, screened a number of local chains of popular grocery brands, and urged companies involved to rectify the situation.
“The regulatory moves should be placed in the broader context of China’s economic change,” said Robin Xing, chief economist for China at Morgan Stanley.
For example, the antimonopoly rules addressed issues such as the excessive concentration of market power on a few tech giants that could depress profit margins for small and medium-sized businesses, he said.
“Recent politics has shown that more emphasis is placed on social justice, which enables a healthier economy, more stable growth and happier lives for the people,” said Wang Peng, an analyst at Yongan Futures in Hangzhou.
Shi Jialong, Head of China Internet and New Media Research at Nomura, said the regulatory action against China’s Internet sector was not aimed at curbing its growth, but rather as a signal that major platforms were diverting their resources and energies from undue competition into research to let advanced technologies.
“We believe that the Internet industry, known for its resilience, should be able to adapt to the environment and sustain healthy growth,” Shi said.
The emphasis on quality rather than the mere speed of development has long been going on. Since the idea of “high quality development” was highlighted at the 19th National Congress of the Communist Party of China in 2017, China has restructured its economy to make growth more sustainable and inclusive.
Fights have been waged to defuse financial risks, eradicate absolute poverty and tackle pollution. Meanwhile, deepening reforms on all fronts is high on the government agenda to foster a new development paradigm.
The most recent meeting of the Central Committee for Financial and Economic Affairs, attended by the country’s leaders, once again emphasized high quality growth, emphasizing “common prosperity”.
“If you look back, you will find that all policies can be traced back to the development philosophy outlined in public documents,” said Wang.
“Some people missed the signs or didn’t fully understand them,” he said.
For example, social justice has always been a political priority, Wang said.
China is well on its way to meeting its “over 6 percent” growth target for 2021, with GDP growing 12.7 percent in the first half of this year.
“That means the country has left enough headroom to advance policies that are vital to long-term development,” said Victoria Mio, Asian equities director at Fidelity International.
The regulations are conducive to the long-term growth of the Chinese economy and capital market, said million.
Fidelity International is optimistic about the prospects for the Chinese market and has requested the establishment of a wholly owned fund management company. The application was approved by China’s top securities regulator in August.
Other global wealth management giants are increasingly becoming China bulls. In an interview with the Financial Times in August, an investment strategist at BlackRock’s research recommended that investors de-allocate China’s markets.
Wang believes investors have reasons to remain bullish on Chinese assets.
From a financial markets perspective, China’s bond yields are among the highest in major economies while its stock market valuation is lower than most developed countries, Wang said, citing the long-term investment value of China’s assets.
“There is no question about maintaining confidence in China and its assets,” he said.