On Oct. 16, China’s A-share market was in shock throughout the day as the three major stock indexes in China fell collectively. The Growth Enterprise Market (GEM) index fell 2 percent, hitting a 3.5-year low. Semiconductor chip stocks, including storage chips, fluorine chemicals, photoresists, lithium, and other new energy track sectors, fell across the board.
The so-called king of China’s new energy tech company, Ningde Times, is a leading supplier of batteries and parts for electric vehicles. Its shares fell more than 3 percent that day, hitting a new low in two and a half years. In August, the company’s stock had risen in price as foreign investors bought into it.
Foreign Capital Flees
According to the Chinese regime’s financial regulations, foreign capital cannot directly invest in China’s A-shares. Instead, they have to invest in China A-shares through the Stock Exchange of Hong Kong (HKEX). Therefore, after the opening of the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, foreign capital can invest in Shanghai and Shenzhen stocks through the HKEX.Foreign capital is concentrated in leading companies in Chinese insurance and pharmaceutical industries and various other sectors. The selling of these stocks by foreign investors has caused China’s A-share market to plummet.
Global Hedge Funds Sold Chinese Stocks Due to Grim Economic Prospects
According to publicly available data, the average daily net capital outflow for the three months from July to September was 4.6 billion yuan (about $657 million). In that case, a total of around 423.2 billion yuan ($42.86 billion) of foreign capital was withdrawn in three months.Foreign capital reflects international investors’ views on the Chinese market. From August to October, the trend of fleeing foreign capital shows that investors were not optimistic about China’s economy and were looking for safer alternative targets.
The reasons for the current round of A-share declines are generally explained by the CCP’s official financial sources as the risk factors of escalating wars overseas, coupled with a weak boost to China’s domestic economy.
It is important to note that the Chinese stock market has been performing poorly over the past three years against the international trend. In particular, China’s neighboring country, India, has outperformed China, and in September, India’s stock index hit a new high after its July high. Between the beginning of the year and the end of September, foreign investors bought more than $15 billion of Indian stocks.
CCP Central Bank Governor Attempted to Appease the West
On Oct. 13, at the annual meeting of the World Bank Group and the International Monetary Fund (IMF) in Morocco, Pan Gongsheng, the governor of the People’s Bank of China (China’s central bank), delivered a speech in which he responded to global economic leaders, including U.S. Treasury Secretary Janet Yellen, on China’s economic slowdown and other issues.Mr. Pan claimed that since the beginning of this year, China’s economy has continued to recover, with an overall upturn in the economy; the real estate market is picking up; financial stability and risks are manageable; and the next step is to focus on boosting consumer confidence and expanding domestic demand.
The Mafia-like Environment in China’s Stock Market
Chinese retail investors were the first to see the scams in the Chinese stock market. China’s stock market once had more than 200 million retail shareholders, made up of office workers, civil servants, and other ordinary citizens. They were the main force in China’s A-share market. Now, retail investors are generally desperate in China’s stock market. There are less than 50 million of them still active. In other words, about 150 million shareholders have been trapped or have fled the market.Many retail investors have criticized the stock market’s frantic IPOs (Initial Public Offerings) through public platforms as an elaborate scam to harvest small investors. While U.S. retail investors can buy and sell in a T+0 (same day) environment and hedge their short positions with large quantitative traders, Chinese retail investors are deprived of all these rights. Quantitative traders in China, on the other hand, can bypass the regulations and enjoy a T+0 environment. Ultimately, only major shareholders, often elites within the CCP, are profiting in China’s stock market. Retail investors who are everyday citizens often feel that the elites were manipulating them.
In September, BlackRock, the world’s largest asset management group, announced the closure of its theme fund in China. Over the past 20 years, BlackRock has invested in almost every country without fail, except in China, where it suffered losses.
After the A-share market plunge on Oct. 16, the Chinese authorities once again attempted to save the market. In the evening, 18 listed state-owned companies announced an inention to buy back their shares or increase their holdings. Nearly 20 A-share listed companies reported that controlling shareholders, beneficial owners, directors and supervisors, and other relevant shareholders terminated their share reduction plans in advance.
The unified action from China’s state enterprises to the top private companies came under the Chinese authorities’ plan to control the financial risks and avoid the collapse of market confidence.
U.S.-based Chinese financial commentator Zhang Jinglun told The Epoch Times on Oct. 16 that China’s economy is in decline as the financial crisis triggered by the real estate collapse is imminent, and its stock market is becoming increasingly unpredictable.
Mr. Zhang said: “The CCP wants to maintain financial stability and control risks, including avoiding a stock market crash, by using the totalitarian system of the CCP to intervene in debts and the stock market. The A-share market is a place for the CCP’s powerful elites to make money, and they will use all means to maintain the external facade of this gambit, so as to attract foreign investors and retail investors to enter the market with their money. However, China’s external environment has changed, and with foreign capital leaving the country on a large scale, the CCP’s economic crisis will become unsolvable. Sooner or later, they will not be able to manipulate the stock market as they wish, and the crisis will arrive eventually.”
