China’s policy has wrecked its markets.

A giant screen shows Chinese President Xi Jinping during a media tour organized at the Beijing Stock Exchange in Beijing, China, February 17, 2022. REUTERS/Florence Lo – RC2GLS923SVE

HONG KONG, March 16 (Reuters Breakingviews) – Cumulative political and diplomatic blunders are wrecking the valuations of listed Chinese companies. Although officials belatedly sprung into action on Wednesday, having spent the past few years taking investors for granted, Beijing will have a hard time reassuring them now.

While the war in Ukraine has derailed markets everywhere, China’s fall is particularly cruel and increasingly indiscriminate. National benchmark indices were the world’s worst performers outside of Russia at Tuesday’s close; The continent’s exchanges have shed more than $2 trillion in market value since the start of the year, according to Refinitiv data. The largest companies tracked by the CPI300 are down a fifth, while the Hang Seng Chinese Company Index has slipped back to 2008 levels. Domestic traders are even fleeing government-backed safe-haven industries such as defense. .

In New York, once-tech darling Alibaba (9988.HK), once trading above $300 a share, is falling toward its $68 IPO price, as are many peers. The Golden Dragon Index that tracks Chinese companies listed in New York is down around 40% year to date. The dark landmarks are tumbling into view. In late February, for example, the MSCI China Index reported a measly 1.5% annualized gross return since 1992.

This is mostly self-inflicted. President Xi Jinping’s decision to approach Russia’s Vladimir Putin may have encouraged the latter to attack kyiv. The pullback could subject Chinese companies and banks to secondary sanctions, while soaring energy and food prices will reduce demand for Chinese goods and services at home and abroad. On top of that, officials are implementing draconian methods to control a resurgent Covid-19 outbreak. That will also suppress domestic consumption, with most listed Chinese companies focusing on local markets.

To the diplomatic and viral headwinds add political fantasy. The campaign to eradicate financial risk has degraded into incoherent bureaucratic attacks. In 2021, for example, the government overnight turned the entire after-school tutoring sector, previously a popular trade, into a not-for-profit industry. The cybersecurity regulator was inserted into the listing process. Paranoid nationalist politicians have refused to accommodate US accounting watchdogs’ reasonable concerns about fraud, raising the risk that China Inc will soon be out of New York.

Until Wednesday, the central government seemed indifferent to the liquidation. Vice Premier Liu He then spoke, promising favorable market policies and more caution with policy changes that could affect prices; he even said that he would try to cooperate with US regulators. That’s exactly what investors want to hear, and China’s stocks had a big bang. However, Liu, a financial reformer, does not always speak for the entire government. Scared investors will be watching closely how it goes.

(This story has been updated to reflect Vice Premier Liu He’s speech.)

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(The author is a columnist for Reuters Breakingviews. The opinions expressed are his own.)

CONTEXT NEWS

– China will implement favorable policy measures for its capital markets while cautiously revealing measures that risk harming them, Vice Premier Liu He said on March 16. Onshore and offshore stocks rose sharply on the news.

– China’s benchmark CSI300 index that tracks large companies listed on the Shanghai and Shenzhen stock exchanges fell 4.6% to 3,983.81 on March 15, the lowest level since June 2020. Hong Kong, the Hang Seng China Enterprises Index has fallen to levels not seen since 2008.

– The Nasdaq Golden Dragon Index, which tracks Chinese companies listed in the US, is down almost 40% so far this year. The MSCI China Index is down nearly 30% over the same period.

Edited by Antony Currie and Katrina Hamlin

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