Peter Fuhrman, a Tech Investment Banker in China, Analyses Oneplus

1 Talking Point 7 Week in 60 Seconds 8 China and the World Week in China 9 Internet and Tech 10 Property 11 Cross Strait 12 Telecoms 15 Economy 17 July 2015 16 Society and Culture Issue 290 18 And Finally www.weekinchina.com 19 The Back Page In too deep? m o c . n i e t s p e a t i n e b . w w w The government tries to rescue China’s investors, but what does that mean for the future of market reforms? Brought to you by Week in China Talking Point 17 July 2015 Margin of error Chinese investors have learned just how dangerous margin trading can be Nail-biting period: another volatile week for China’s A-share market here were signs last weekend innovative, benefit the people’,” a ures might mean for China’s longer- Tthat the reverberations in new text message informed the term policy agenda. China’s stock market were starting campus. to reach some of the country’s most The same stipulations might well What have the authorities done to respected universities. be directed to China’s stock market stem the rout? Confidence boosting was the regulators, following a brutal few The theme of our Talking Point a order of the day, according to an weeks for investors. The situation couple of issues ago was investor email sent to students before a on Chinese bourses has been bleak, confusion. The market had turned graduation ceremony at Tsinghua, with shares in Shanghai down for the worse, but government agen- telling them to “follow the instruc- about a third on their mid-June cies were sending out seemingly tion and shout loudly the slogan, peak, and the Shenzhen board contradictory signals. But as stocks ‘Revive the A-shares, benefit the falling further. More than $3.5 tril- plunged further, the message be- people; revive the A-shares, benefit lion of value has evaporated. The came more unified.The intervention the people’,” the Financial Times re- market has since stablised, with the began with the authorities encour- ported. key Shanghai Composite Index hov- aging people to buy shares, and Later, the university countered ering around 4,000 this week. moved on to ordering others to stop that the email was an inside joke As the smoke clears on the first selling them. P h o t o and that it hadn’t been approved phase of the crisis, WiC looks at how The People’s Bank of China had S o u r by the faculty. “Our official slogan the government has responded to already lowered benchmark interest c e : R e is now ‘Actions speak louder than the wildfires of the last month, be- rates, relaxed reserve requirements u t e r s words, shoulder responsibility, be fore asking what the rescue meas- for banks and injected liquidity into 1 Week in China Talking Point 17 July 2015 Under pressure: CSRC boss Xiao Gang the market. Then curbs on broker pended from trading. ing their prices sharply upwards. loans were loosened, as the central The CSRC has also banned share- bank ploughed cash into China Se- holders with stakes of more than 5% Has the government been too curities Finance Corp, a state-run from selling for the next six heavy-handed? firm that lends money to people to months, threatening punishment More seasoned stock-pickers say buy shares on margin. State-owned for anyone who violates the edict. Beijing has overreacted and that the brokers were pressured to commit The measures stopped the worst reversals are a healthy dose of real- publicly to buy stocks until the of the selling. The Shanghai Com- ity for a market that rose more than index rallied. Central Huijin, the posite Index rose from its recent 150% in the year before the bubble controlling shareholder of major low of 3,507 points last Wednesday burst. Even after the dramatic falls, state banks, also pledged to raise it to close this Monday at 3,970, up share prices are only back to levels stakes in index heavyweights such 13.2% over three trading days. set in March. as ICBC and Bank of China. More of the stocks in the trading Other regulators have also inter- The search for culprits – real or halt have started to come back on to vened in moments of market panic imagined – began in earnest. Offi- the market, although 700 were still in the past. The Hong Kong govern- cials complained market manipu- frozen as of Wednesday. But one of ment bought shares to fight off lation by foreign investment the early outcomes of the suspen- short-sellers in 1998, and the Secu- banks. sion was panic selling of shares not rities and Exchange Commission The CSRC, the securities regula- embargoed by the regulators, even banned short-selling on some US tor, and even the police threatened of better established performers. stocks 10 years later. During the to hound down “malicious” short- “Originally, many investors wanted same crisis in 2008, the Bush ad- sellers. to hold blue chips. But since so ministration launched its $700 bil- Meng Qinfeng, the vice minister many small caps are suspended lion asset relief programme, of public security, reported that his from trading, the only way to re- although that was designed to stop investigative teams had found early duce risk exposure is to sell blue companies from going kaput, evidence of “trading firms involved chips,” explained Du Changchun, an rather than to rescue an index. in illegal manipulation”. analyst at Northeast Securities. Washington, mind you, took ac- Meanwhile the IPO window had To counter this selling pressure, tion at a time when a total financial P h o t o been closed to stop new shares state-owned buyers swung into ac- collapse seemed eerily imminent. S o u r being issued; while about half the tion, snapping up shares in heavy- Comparisons with China today c e : R e firms on the two main boards in weights including PetroChina and seem stretched in this regard. The u t e r s Shanghai and Shenzhen were sus- China Construction Bank, and send- growth figure for the second quar- 3 Week in China Talking Point 17 July 2015 Punting and punning: the market downturn was given the nickname the ‘Great Fall of China’ ter came in this week at 7%, which Roger Xie, an equity strategist at been written about how small the was ahead of consensus forecasts. HSBC, has suggested that the trad- market is in comparison to China’s Most analysts question whether ing halt is buying time for com- economy and how, apart from the the share market downturn is pany bosses who had executed hidden shadow banking margin, going to poison sentiment across stock pledges, which are loans se- the spill-over effect of a precipitous the economy at large. cured against shareholdings in fall is quite limited,” the former As Qu Hongbin, HSBC’s chief their firms. There was an average of banker suggests. economist for Greater China, has 424 new pledges a month this year, “But perhaps the government pointed out, less than 15% of Chi- with committed equity reaching can see the real level of borrowing nese household assets are invested about Rmb2.4 trillion of market by listed companies that is secured in stocks, and consumption tends to value. against their shares. Perhaps they be driven more by income rather These company insiders risk hav- can see that there is actually a far than perceptions of overall wealth. ing to cough up more collateral for greater risk of contagion into the “In a nutshell, the wealth effect ap- their loans when markets fall, mainstream banking sector and pears quite hard to pin down, and in which is why they were desperate to this is the reason for their sudden any case is very marginal,” he con- get onto the sidelines during the panic.” cluded last week. worst of the rout. Fears of financial contagion also “The A-share trading halt be- This was more about credibility look overstated, with few signs of fi- comes a way to avoid further price than crisis? nancial stress spilling into other declines to lose their stock rights,” Another interpretation of the gov- areas of the economy. Money mar- Xie explains. ernment action is that senior fig- ket rates and corporate bond yields But a longtime reader of WiC ures in Beijing lost their nerve as the have stayed steady, and parts of the made another point by email this markets went into meltdown, fear- P h o t o property market are even enjoying week, speculating that many of ful of the political repercussions. S o u r an upturn. these pledges could be at risk of im- The theory is that the central c e : R e Some of the dangers may be ploding, which could then trigger a government promoted the rally u t e r s harder to discern. For instance, wider financing crunch. “Much has willingly over the last year, hoping 4 Week in China Talking Point 17 July 2015 that stronger share markets would help with an overhaul of state-run Planet China firms, allowing the more indebted Strange but true stories from the new China enterprises to refinance with new equity, and thus avoid loan defaults or asset restructurings. Now in its sixth season, the US drama The The state newspapers joined the Good Wife has entertained viewers with unusual courtroom cases. But the cheerleading effort and millions of Qianjiang Evening News reckons it has a Chinese legal case that would top any American court settlement.

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