What happens to Chinese stock market?
Two months ago, a man broke into a government building in Beijing and attempted to set himself on fire. After being thrown out by security guards, he tried again before police arrived to stop him.
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The man, whose name the authorities refused to disclose, was not protesting against human rights abuses or the loss of his home to an unscrupulous property developer the sort of injustices that more often give ordinary Chinese the courage to defy the all-powerful state. Instead, his rage was at the China Securities Regulatory Commission, the stock market watchdog, and his attempt on his life was made at its headquarters, reportedly in despair at the dismal recent performance of Chinese share prices.
China's transformation from a command economy to semi-capitalist juggernaut has proceeded at a pace that has consistently confounded sceptics. Yet one part of this process that has badly misfired has been the effort over the last decade to build a strong domestic capital market.
In the late 1990s, when the stock market was growing rapidly and Communist party newspapers urged people to buy shares, some observers predicted that the Shanghai and Shenzhen bourses would take over from Hong Kong as the markets of choice for China's leading companies (see below).
Today, that idea appears far-fetched. Although the government claims tens of millions of Chinese have bought shares at some stage, the country's markets have slid in the past four years as retail investors have been driven away by falling prices, the state's overbearing influence on listed companies and corruption and incompetence among local securities houses.
In spite of national economic growth of nearly 10 per cent, the Shanghai composite index dropped 15 per cent last year, making it the worst performing of all main world markets, and it is down further this year. The collapse has been so pronounced that the total market value of China's public companies has fallen since 2000 even though 513 new listings came into existence during the period.
“China's capital markets are really floundering and the authorities don't seem to have a real idea of what to do,” says Fraser Howie, co-author of the book Privatising China*.
While the problems are not new, the consequences of the market torpor and of the securities industry's inadequacies are mounting rapidly. The suicide attempt at the CSRC is evidence of the anger among middle-class shareholders. Protests over savings lost in the stock market have been growing an alarming prospect for leaders in Beijing whose grip on power depends largely on ensuring social cohesion and rising wealth.
There are serious economic implications too. The malfunctioning stock market is a missed opportunity to fund a new breed of company capable of competing internationally. More worrying for the foreign investors who each year pour billions of dollars into China, the slump in its capital markets is adding pressure on a financial system already strained by a banking sector drowning in bad loans and malpractice.
How did the Chinese market get in such a mess? The problems started with the companies chosen to list. From the start, the authorities saw the stock market as a new source of funds for state-owned companies, including many struggling ones, and therefore a way to relieve the banks from their onerous role as providers of cheap funds to government corporations.
“The stock market did the banks a huge favour by taking the burden of financing mediocre companies away from them,” says Joe Zhang, a former Chinese central bank official who is now co-head of research at UBS in Hong Kong. “These companies raised money from moms and pops rather than from the banking system.”
To facilitate such a process and lure retail investors to companies of dubious quality Beijing set rules that ensured initial public offerings were underpriced, thus guaranteeing investors handsome gains in the first few days of trading. But in turning the stock market into an instrument of state economic planning, the government sowed the seeds of future decline.
That was compounded by a cultural and ideological reluctance by ministries and local authorities to relinquish ownership of “their” companies. Only one-third of issued shares in listed companies form the free float for trading on the exchanges. The rest are mostly owned directly by the state or its companies. “The corporate [issuers] that stole the money with IPOs put something back by buying shares in other state-owned companies. It is one way to offset those ill-gotten gains,” a Hong Kong-based banker ruefully observes.
With the state so dominant, minority shareholders get short shrift from listed companies. “The companies never come to visit us unless they are looking to do a secondary offering,” says Frank Yao, chief investment officer at Hua An Fund Management in Shanghai. “They think that as they have already raised money from these guys they don't need to pay us any attention.”
These problems are compounded by the inadequacies of China's securities industry. A corporate bond market barely exists. Few brokerages have the skills or financial wherewithal to underwrite a public equity offering. Mismanagement is so rife that many of the country's 130 brokers are near bankruptcy. Their undoing was brought about by the sale of lossmaking products such as investment funds that promised guaranteed returns on equities and the use of clients' money for brokers' own proprietary trading, say independent commentators. Such cavalier practices, and the prolonged bear market, left huge numbers of investors out of pocket, turning them off equities and thus exacerbating the market slide.
Apart from its potential social implications, the lack of a robust capital market is likely to have a strong influence on the future shape and development of Chinese capitalism. Cheap manufacturing might be China's current competitive advantage but, in the long run, Beijing planners want the country to move more into lucrative high-technology sectors that provide better-paying jobs. A recent emergence of labour shortages in the Pearl River region of southern China has given new urgency to these ideas.
To make such a transformation, China will need a dynamic private sector, run by entrepreneurs who have the drive to build innovative companies. Yet it is exactly these sorts of companies that are being squeezed out by an equity market that caters mostly to state-controlled groups.
Permission for IPOs is given first and foremost to state companies, leaving private enterprises without an easy funding route. Estimates vary, but only between 30 and 130 of the 1,300 companies listed on the Chinese market have a private-sector background and even some of those are in reality controlled by branches of the state.
“The cities and provinces deliberately pushed lousy state-owned companies on to the stock market to reduce the pressure on their own finances,” says Mr Zhang at UBS. “It is not surprising the market is in the state it is today.” He points out that the 100 companies that UBS tracks have performed well over the last few years: it is the long tail of mediocre state groups that have pulled down the overall market.
Private-sector companies can get bank financing, especially if they have good political connections. Yet the lack of an equity funding route is likely to curtail China's ability to develop a strong private sector. In this area, many argue that India is already ahead, as most of its biggest companies come from the private sector and have grown through raising capital on the equity and bond markets.
he issue is important in terms of public policy, where China needs a robust stock market to stave off a looming pensions crisis. One of the by-products of the one-child policy introduced 25 years ago is that in a decade or so many more people will be retiring than entering the workforce. “China will get old before it gets rich,” says Stuart Leckie, a pensions expert in Hong Kong.
The World Bank says future pension liabilities for China could reach 140 per cent of gross domestic product. This is not vastly out of line with other developing countries but it does underscore the need for a ready supply of inflation-beating assets in which pension funds and individuals can invest.
In spite of saving more than most other nations about 40 per cent of individual income the Chinese have few options other than to park their cash in banks that pay them risible interest rates and sometimes squander their savings on loans to troubled state companies. “The government should be doing everything it can to develop a capital market that can protect pension assets,” says Yasue Pai, senior consultant at Stirling Financial in Hong Kong. “They have to fix the problem in the next 10-20 years before the system becomes unsustainable.”
Over the past few months, Beijing has shown considerable concern about the state of the markets, taking a number of measures to stimulate share prices. Among the most significant changes, the authorities have halved taxes on share trading and made it easier for insurance companies, which have more than $7bn (￡3.7bn, �5.4bn) in assets, to buy shares. Foreign investment banks, including Deutsche Bank, Merrill Lynch and UBS, have been allowed to set up asset-management joint ventures with Chinese partners. The central bank has also established rules allowing China's large commercial banks to set up mutual fund operations, which could eventually lead to the banks channelling significant amounts of savings into equities.
The problem, however, lies in the very nature of these administrative fiats: the government's unwillingness to step back and let the market operate is a constraint on its development. Last year, for example, when the authorities decided to introduce a fairer system for IPO pricing, they placed a six-month ban on new listings. The move was aimed at giving the regulators enough time to devise the rules. Yet it reinforced the impression that nothing in Chinese markets, not even an IPO, happens without Beijing's say-so.
At some stage, the government will have to reduce its equity holdings the non-tradable state shares that account for around two-thirds of equity in listed companies. Yet, on the two occasions that the reformist regulators at the CSRC were able to overcome objections within the government about selling state shares, they were forced into retreat by the subsequent fall in the market as investors began to worry about a glut of new shares.
Although many say a new plan is being prepared, there is considerable confusion about the government's objectives. “Everyone can agree that state shares are a problem but no one knows where the government wants to go whether they want to sell out entirely or not,” says Mr Howie.
Reforming the domestic brokerages also poses tough questions for the government. Allowing foreign securities houses to set up wholly owned subsidiaries could prompt the local brokers to sharpen their act. Consolidation among struggling brokers would also help. Some moves have happened. Goldman Sachs, for example, was allowed to create a Chinese brokerage business from scratch, after paying a Rmb510m (￡32m, $62m, �46m) “donation” to bail out a failed domestic securities house.
Allowing further foreign competition and cleaning up the indigenous broking sector would, however, mean confronting powerful vested interests in the provinces and cities, which own most of the troubled entities, and could be expensive. “If the brokerages consolidate, that just transfers huge debts from one firm to another,” says Wang Kai Guo, chairman of Haitong Securities in Shanghai. “In the end, the government will have to spend some money to solve the problem.”
Few see any quick fixes available to Beijing. Most possible reforms involve rethinking the role the state plays in the economy. Even self-confessed optimists such as Mr Yao of Hua An Fund Management admit there is a growing opinion in the capital markets that the authorities should “start again from scratch”. Still, the protests from shareholders who have seen their savings shrink are unlikely to disappear.
*Carl Walter and Fraser Howie, Privatising China (John Wiley)
中国股市怎么了？(下)
除了潜在的社会影响外，缺乏强有力的资本市场可能会对中国资本主义未来的形成和发展造成重大影响。低成本的制造业或许是中国目前的竞争优势，但长期来看，中国的政府规划者希望，中国更多地进入有利可图的高科技产业，这些产业能提供报酬更高的就业机会。华南珠三角地区最近出现劳动力短缺现象，这令上述想法显得更加紧迫。
私企遭排挤
为了进行这种转型，中国将需要一个有活力的私营部门，由一些积极创新企业的企业家们来经营。然而，恰恰是这类企业遭到排挤，无法进入中国股市，它主要为国企集团服务。
首次公开发行许可往往首先给国有企业，致使私营企业缺乏一个方便的融资途径。虽然估计数字不尽相同，但在中国股市上市的1300家公司中，仅有30至130家拥有私营部门背景，而即使是这些公司，其中一些实际上也是由国家机构控制。
“各省市故意将糟糕的国有企业推上市，以减少对它们自己的资金压力，”瑞银的张先生说，“今天市场到这个地步不足为奇。”他指出，过去几年中，瑞银追踪的100家公司表现良好：而平庸的国有集团是个大尾巴，拖累了整个股市。
私营企业有时也能获得银行融资，尤其当它们在政界有良好的关系时。但缺少股票融资途径可能会削弱中国发展强大私营部门的能力。在这方面，许多人士认为，印度已走在了前头，因为印度大多数规模最大的公司来自私营部门，并通过在股票和债券市场筹资而得到发展。
日益逼近的养老金危机
从公共政策角度来看，上述问题非常重要，因为中国需要一个强劲的股市，以免受到日益逼近的养老金危机的影响。25年前提出的独生子女政策的副产品之一是，约10年之后，将退休的人会比加入劳动人口的人多得多。“中国将在变富之前变老，”香港的养老金专家斯图尔特?莱基(Stuart Leckie)说。
世界银行(World Bank)表示，中国未来在养老金方面的负担可能达到国内生产总值(GDP)的140%。与其它发展中国家相比，这个水平不是很离谱，但这一数字确实突出表明，中国需要可供养老金基金和个人投资的现成资产，这种资产应能抵御通货膨胀。
中国人把约40%的个人收入进行储蓄，这一数字超过大多数其它国家，但除了把钱放进银行之外，中国人几乎没有其它投资选择。而银行提供的利息很低，而且有时候会浪费人们的储蓄，用来为陷入困境的国有企业提供贷款。“政府应该尽其所能，发展一个能够保护养老金资产的资本市场，”Stirling Finance驻香港的高级顾问Yasue Pai说，“他们必须在今后10到20年间、在整个体系难以为继之前解决问题。”
政府刺激手段
在过去几个月里，中国政府已对市场的状况表示了相当的关切，采取了大量措施刺激股价上涨。最重大的改变包括，有关当局已将股票交易税减半，并使拥有逾70亿美元资产的保险公司能更方便地买卖股票。德意志银行(Deutsche Bank)、美林(Merrill Lynch)，以及瑞银等外国投资银行已获准与中方伙伴设立资产管理合资企业。中央银行也制定了法规，允许中国的大型商业银行设立共同基金，这最终可能导致银行将大量储蓄资金导入股市。
但问题在于这些行政命令的本质：政府不愿退居二线，而让市场自己运行，这对市场的发展是个约束。例如去年，有关当局决定为首次公开发行引入更公平的定价机制，同时又对新股上市设置了6个月的禁令。此举的目的是让监管部门有足够的时间来设计相关法规。然而它让人们愈加感到，在中国市场上，任何事都要得到中国政府的首肯才能进行，就连首次公开发行也不例外。
有朝一日，政府将不得不减少在上市公司的股份，这些非流通国有股占上市公司总股本的约三分之二。然而，在国有股减持问题上，证监会中的改革派官员曾有两次可能，能克服政府内部的反对意见，但后来又被迫打了退堂鼓，因为投资者开始对大量新股的涌入感到担心，而导致股市下跌。
尽管许多人说，一项新的方案正在筹备中，但对于政府的目标，人们还是感到相当困惑。“大家一致认为国有股是个问题，但没人知道政府想怎么做，是否想把国有股全部出售，”豪伊先生说。
如何改革成棘手问题
如何改革国内证券经纪业，这也是中国政府面临的棘手难题。允许外国券商在中国设立全资子公司，可以促进本土券商加紧行动。在一些陷入困境的券商之间进行整合也会有所帮助。有些举措已经实行。例如高盛(Goldman Sachs)已获准创建一家全新的中国经纪业务子公司，之前，该公司“捐献”了5.1亿元人民币（合6200万美元)，以为一家破产的中国国内券商抒困。
但允许更多海外竞争介入，清理本地证券经纪业，将意味着对抗一些省市强大的既得利益势力，而且可能要付出高昂的代价。这些省市拥有大部分问题券商。“如果券商进行整合，那不过是把巨额债务从一家公司转移到另一家，”上海海通证券(Haitong Securities)董事长王开国表示，“最后，政府将不得不花钱来解决这个问题。”
几乎没有人认为，中国政府能有什么快速解决方案。最有可能实行的改革将涉及一个问题，即反思国家在经济中所扮演的角色。华安基金管理公司的姚先生自称为乐观派，但就连他这样的人也承认，资本市场中日益增强的一个观点是，有关当局应当“从头再来”。不过，股民们目睹自己的积蓄不断缩水，他们的抗议不太可能消失。
*《中国私有化》(Privatising China，John Wiley Sons公司出版)，作者：卡尔?沃尔特(Carl Walter)、弗雷泽?豪伊(Fraser Howie)
