SHANGHAI: China’s stock market faces concerns over its integrity once again as a “national team” of state-owned investors plays an increasing role in shaping prices and trends. Dong Mingzhu, chairperson of Gree Electric Appliances of Zhuhai and China’s very own “Iron Lady,” said at a shareholders meeting May 19 that she was buying her company’s shares because she considered them valuable. The iconic businesswoman, who began her career at the appliances company as a salesperson, has now become the ninth-largest shareholder after about 30 separate purchases.
The Chinese government is Gree’s largest shareholder. Last fall, Dong was abruptly removed as head of Gree Group, the appliance maker’s parent. State investment fund China Securities Finance also unloaded all of its shares in Gree. Many think the Chinese Communist Party was bothered by Dong’s push to expand into new business areas, and they see Dong’s stock purchases as her way of fighting back. When China’s stock bubble burst in summer 2015, Beijing took pains to ensure stability in the market. The government gave financial institutions lists of stocks to buy and detained executives at brokerages and investment funds for illegal trading. China Securities Finance and other members of the national team still have nearly 1 trillion yuan ($145 billion) invested in the market. But nobody knows the team’s true intentions. In addition to Gree, these state-owned investors also are selling down real estate developer China Vanke, which has been fighting bitterly against a takeover attempt. Meanwhile, they have snapped up large-cap banking issues that could lift stock indexes.
China’s stock market was created initially so state-run companies could raise additional capital. Though the government inevitably would remain a key influence, the market cannot be fair as long as the referee continues to be a player in the game. Questions also have arisen over trading related to the Xiongan New Area, President Xi Jinping’s pet urban development project. Investors snapped up Kinghand Industrial Investment, which is developing property in and around the proposed new city, before the People’s Daily newspaper had reported on the project. The issue gained 90% at one point. One of these lucky companies has close ties with state-run conglomerate Citic group, and Kinghand shares makes up more than 70% of the total assets in some of that early bird’s funds.
Additionally, an investment banker notes a potential compromise between Chinese authorities and U.S.-based index maker MSCI. MSCI released a proposal in March for the inclusion of yuan-denominated A-shares in its emerging market index. China apparently has not caved in on its stance that the sale of any financial products linked to an index containing A-shares requires preapproval. The group is considering reducing the number of shares in consideration so they account for less than 1% of the entire index. Chinese banking shares rose across the board Thursday, just a day after a U.S. ratings agency downgraded Chinese government bonds. The boost was presumed to be the work of the national team. Despite the Shanghai Composite Index remaining mostly flat, trust in the market has never been lower.
