After Stocks Plunge in Hong Kong, Mainland China, Beijing’s Economic Assurances Sends Them Soaring

A woman uses her phone at the Hong Kong International Airport in Hong Kong on March 21, 2022. (DALE DE LA REY/AFP via Getty Images)

The stock market in continental China and Hong Kong, which plummeted for two consecutive trading days due to the failure of U.S.-China economic talks, rebounded in an abnormally short window after China’s financial commission issued a bailout signal on March 16.

“This just goes to show that the Chinese stock market has always been a ‘policy market’, heavily influenced and manipulated by Chinese Communist Party (CCP) officials, rather than being led by market rules like a normal stock market,” political affairs commentator Lu Tianming told The Epoch Times on March 18.

On March 16, Liu He, China’s vice premier and head of the Financial Stability Development Committee (FSDC) of the State Council, emphasized the need to maintain the “stable operation” of capital markets at a special session on real estate companies, Chinese stocks, and Hong Kong’s financial markets, according to official Chinese media reports.

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FSDC’s subordinate financial regulators including China’s Central Bank, the Securities Regulatory Commission, the China Banking and Insurance Regulatory Commission, and the State Administration of Foreign Exchange quickly echoed they would perform the needed work and make all efforts to maintain a stable capital market.

The Chinese market responded with a strong rebound for China concepts stocks. On March 16, both the A-share market and Hong Kong stocks soared, and the Shanghai Stock Exchange Index posted the largest single-day increase over three years, according to a March 17 report by state-backed Securities Times.

Compared with the Chinese A-share market, the Hong Kong stock market rebounded more fiercely. The Hang Seng Index closed the day with a rise of 9.08 percent, back above 20,000 points—the largest single-day gain since October 2008. The Hang Seng Technology Index also rose spectacularly, surging 22.20 percent by the end of the day—the largest single-day gain in the history of the index since its release.

China’s concepts stocks in Hong Kong also bounced back, with Meituan increasing over 32 percent and Alibaba over 27 percent.

Dong Yun, executive deputy director of the Industrial Finance Research Base of the Chinese Academy of Social Sciences, told state-run Economic View on March 16 that following the finance committee’s meeting, the government has released clear policy signals and that the problems in the Chinese market “are being gradually resolved through the adjustment and reform of the institutional mechanism.”

The FSDC was established in November 2017 and its duties now include supra-ministerial or even higher level functions. Each meeting held by the FSDC can be seen as an important statement of directive stance and work deployment for the financial market, which will have a direct effect on the Chinese stock market.

The FSDC’s move came as the U.S.-China talks in Rome seemed to fail to produce any shared understandings. Global markets are worried that all financial products in China will become junk, triggering a wave of Chinese capital sell-offs.

On March 14, U.S. National Security Advisor Jake Sullivan and Yang Jiechi, director of the Central Foreign Affairs Office, met for seven hours in Italy.

The same day, Hong Kong’s stock market endured a setback. A-shares market value saw 2,241.85 billion RMB (about $352.8 billion) wiped out from the previous trading day. On March 15, the Hang Seng Index recorded its third-largest monthly decline in nearly 30 years; the Hang Seng Technology Index also staged a shock, closing down 8.10 percent on the same day, according to Chinese media.

“Such plunge is not only the financial market capital outflow but also represents the outside world’s judgment of Chinese economic outlook, which makes the CCP feel extremely frightened,” Lu said, “as from the CCP’s view, this will affect the hearts of the people and social stability, so it turns to panic and rushed to rescue the market.”

“The CCP has been creating a false image of prosperity to attract foreign capital,” Lu said.

“If the [economic] bubble bursts, it will affect its [the CCP’s] attempts to attract foreign investment and further affect the economy. It would be a beginning of a vicious cycle for the Chinese regime,” Lu added, not to mention further suffering for the Chinese people.