Source: Reuters/Jason Lee
The Long March II-F rocket loaded with Shenzhou-9 manned spacecraft carrying Chinese astronauts Jing Haipeng, Liu Wang and Liu Yang lifts off from the launch pad in the Jiuquan Satellite Launch Center
Looking back at this publication 12 months ago, it’s striking how little has changed. This time last year, concerns over China’s slowing economic growth were pushing investors to the sidelines. Analysts were worried that a hard landing for the economy would roil global markets, wiping out trillions of dollars of equity and wreaking havoc on currencies and commodities with close ties to the People’s Republic.
Then, as now, volatility was running high, and many investors were keeping their powder dry. IPO markets were all but closed, only China’s top companies could access international debt, and suspicions of corporate fraud were rising. As if to hammer home the similarities, almost exactly 12 months after short-seller Muddy Waters accused Sino Forest of fabricating its accounts, another research house, Citron Research, levelled similar allegations at Evergrande Real Estate.
In many other respects, however, the situation today is very different. Fears for China’s growth remain, but the gradual slowdown over the last 12 months has failed to produce the kind of market turmoil that many had feared. Instead, it is Europe that is hogging the headlines.
Pessimists will argue that China’s shift in monetary policy, marked by the first interest rate cut since the 2008 crisis, signals just how bad things have become. On the other hand, it also shows a determination among policymakers to address the situation. China has plenty of room for further easing – even without a full-fledged repeat of the jumbo stimulus of 2009.
The capital markets have, inevitably, suffered from this uncertain outlook. Investor confidence remains a hurdle to deal-making, and depressed valuations are hardly enticing companies to come to market.
Amid the global gloom, however, there is some cause for optimism.
China’s political system gives policymakers an enviable level of control over the country’s financial markets, and recent reforms offer real encouragement.
Regulators have already removed countless restrictions on the Chinese currency, paving the way for the renminbi to become a mainstay of the global financial system. Closer to home, reforms in the debt markets leave little doubt as to China’s determination to develop a fully functioning alternative to its state-owned banking sector. In equity markets, too, regulators have introduced a series of reforms that promise to introduce market-based pricing for capital raising, moving China another step towards embracing international standards.
As was the case 12 months back, much is riding on the ability of China’s top bureaucrats to ride out these nervous moments and reignite the country’s economy.
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