Search

 

Cablegate: South China Analysts Criticize Government's Handling Of

VZCZCXRO9315
OO RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0655 1590625
ZNR UUUUU ZZH
O 080625Z JUN 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6135
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEHRC/USDA FAS WASHDC 0961
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS GUANGZHOU 000655

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON CH
SUBJECT: South China Analysts Criticize Government's Handling of
Stock Markets


(U) This document is sensitive but unclassified. Please protect
accordingly.

1. (SBU) SUMMARY: In the aftermath of the plunge in stock prices on
the mainland, South China commentators and academics complain that
central authorities showed a disappointing, but all too common, lack
of transparency before unexpectedly tripling the stamp duty on share
trades on May 30. Analysts generally believe the measures will have
a short-term impact: they may have helped correct the markets for
now, but similar measures in the future could well undermine the
government's credibility on stock-related (and perhaps other)
issues. END SUMMARY.

Stocks Dive After Stamp Duty is Raised
--------------------------------------

2. (SBU) The events of May 30 are already well known: the stamp duty
paid on share trades was increased from 0.1 percent to 0.3 percent,
sending stocks in the Shanghai and Shenzhen exchanges into a rapid
fall. Within four trading days, stock market capitalization
reportedly decreased by 17 percent. To boost confidence, three
major securities newspapers published front-page editorials on June
4 calling on investors to take a long-term view. Although stocks
rebounded slightly on June 5 and 6, the number of new trading
accounts is still a fraction of the April peak. Hong Kong-based
Goldman Sachs economist Enoch Fung told Congenoff that investors
were comforted in part by recent signals in the state media that a
proposed capital gains tax would be delayed until next year.

Poor Transparency
-----------------

3. (SBU) Criticism of the government's actions by South China
newspapers and academics has largely focused on the government's
lack of transparency. Newspapers have quoted investors saying they
were angry not with the stamp duty, but the way it was introduced.
(On May 22, a week before the duty was imposed, officials from the
Ministry of Finance denied that they were considering such a move.)
Zhongshan University Finance Professor Lu Jun told us that the
government's reversal reflected poorly on the Ministry of Finance,
indicating that it was not capable of dealing with increasingly
complex economic situations. Goldman Sachs' Fung said the reversal
had eroded some of the government's policy credibility. Hong Kong's
South China Morning Post reported that mainland participants in
internet chat rooms were openly critical of the government's actions
and compared the fallout to a flash flood.

A Long Term Impact?
--------------------

4. (SBU) Though some newspaper commentators have warned that the
stamp duty may inadvertently lead to a deep freeze in the stock
markets, most see this as a severe but short-lived dip in the
market. Guangzhou's Nanfang Daily quoted Cheng Weiqing, an analyst
from Citic Securities, as saying that no major damage would result
from the sell-off; he pointed out that the United States and Japan
had seen larger dips and recovered well. Peng Yanping, Director of
Citic Securities Reseach Center, compared the stamp duty to a fuse
that sparks an explosion, but said he this was a necessary
correction. Zhongshan's Professor Lu said investors would quickly
forget the pain of this plunge and return to the markets. He added
that the Chinese government's recent move was born out of larger
concern about social instability, and the impact of an
out-of-control stock market and the resulting crash.

The Danger of Future Fluctuations
---------------------------------

5. (SBU) Some analysts warned that similar, unexpected government
actions in the future would undermine the stable growth of China's
securities sector. Newspaper commentators said that the speculative
retail investors who temporarily fled the market were likely to
return. They worry that future unexpected corrective measures by
the government will cause institutional investors to pull out their
money. Guangzhou's Southern Metropolis Daily reported that many
local investors had decided to take their money to banks instead.
The Guangzhou branches of China Everbright Bank, China Minsheng
Bank, and Shenzhen Development Bank reported significant growth in
their RMB investment banking products business since the plunge
began last week.

GOLDBERG

© Scoop Media

 
 
 
World Headlines

 

Gordon Campbell: On The Chemical Weapons Attack (and Response) In Syria

The past week’s headlines about the chemical attacks in Syria – and the military response by the US, France and Britain – have tended to overshadow a few of the downstream outcomes. More>>

ALSO:

Pacific Moves: China, Vanuatu And Australia

Washington’s vigilant deputy, doing rounds on the beat in the Pacific, has been irate of late. The central issue here is the continuing poking around of China in an area that would have been colloquially termed in the past “Australia’s neighbourhood”. More>>

ALSO:

Diplomatic Madness: The Expulsion of Russian Diplomats

How gloriously brave it seemed, some 23 nations coming together like a zombie collective to initiate a fairly ineffectual action in of itself: the expulsion of Russian diplomats or, as they preferred to term it, intelligence operatives. More>>

ALSO:


Campbell On: the US demonising of Iran

Satan may not exist, but the Evil One has always been a handy tool for priests and politicians alike. Currently, Iran is the latest bogey conjured up by Washington to (a) justify its foreign policy interventions and (b) distract attention from its foreign policy failures. More

ALSO:

Cyclone Gita: 70% Of Tonga Population Affected

The full scale of destruction is beginning to emerge from Tonga in the aftermath of the severe tropical cyclone Gita. Around 50,000 people, or almost 70% of the country’s population, have been affected, a third of whom are children. More>>

ALSO:

 
 
 
 
 
 
  • Pacific.Scoop
  • Cafe Pacific
  • PMC