CCP Rolls out Capital Market Reform Measures; Expert Says It Won't Prevent the Looming Economic Crisis

The China Securities Regulatory Commission (CSRC) has proposed a number of measures to revive China's stock market on Aug. 18, amid international community’s growing concerns over the sluggish Chinese economy and its global impact.

The reform measures rolled out by the CSRC include reducing securities transaction handling fees and simultaneously reducing the commission rate of securities companies; further expanding the scope of margin financing and securities lending targets; improving the shareholding reduction system; optimizing transaction supervision and increasing convenience and smoothness of transactions; and research on appropriately extending the trading hours of the A-share market and the exchange bond market.

It also promised supporting share buybacks and encouraged long-term investment to support a stock market.

As soon as the measures came out, major Chinese financial website Caixin.com reported that the Shanghai Stock Exchange, Shenzhen Stock Exchange, and Beijing Stock Exchange announced that they would further reduce securities transaction handling fees starting Aug. 28.

China's economy has remained sluggish and the property market has continued to slump, with real estate giants defaulting one after another. Evergrande Group filed for bankruptcy protection in the United States on Aug. 17, which shocked the market. The Chinese stock market is still weak, the renminbi has depreciated sharply, and financial giant Zhongrong Trust is also facing default.

Chinese assets, including A-shares, Hong Kong stocks, Chinese concept stocks, and the RMB exchange rate, continued to fall, and foreign capital also withdrew continuously. Global investors' confidence in Chinese assets have fallen to their lowest point and global investors are wondering if the Chinese communist regime will rescue the defaulted Chinese companies.

The CSRC answered 10 questions at a press conference regarding the new reform measures on Aug. 18, but didn’t provide any solution to the issues that the market is most concerned about.

Regarding the issue of stamp duty, the CSRC only hinted that once it’s approved by the higher authorities, the regulator may cut the stamp duty on all securities transactions. "Historically, this measure has played a positive role in reducing transaction costs and revitalizing the market,” the CSRC told the reporters.

The market also called for the T+0 (trading on the same day) system. China is currently a T+1 transaction.

The CSRC stated that the implementation of T+0 trading at this stage may amplify the risk of market speculation and manipulation. Therefore, the timing of implementing T+0 trading is not ripe.

Measures Won’t be Effective

"These measures would have little effect, as they are just superficial because it doesn’t solve the fundamental problem of China's economic recession,” Cold Eye on Finance, an online financial expert, told The Epoch Times on Aug. 18.

"Although the reduction of handling fees and some preferential measures are used to attract investors to enter the stock market, it is actually to lure everyone to take over the mess."

He added, "Because all assets in China are in recession—whether it is the property market, stock market, or Chinese enterprises that are sinking—how can its stock market be good?"

The Financial Times cited analysts as saying of the measures that “the call for more share buybacks would help boost sentiment in the short term, even if it was unlikely to fully address the malaise hanging over Chinese markets.”

Decades of Recession Ahead

Cold Eye on Finance said, "The fundamental problem in China now is not how people should invest in the stock market to revive it, but how serious the economic crisis in China is."

He used the bankruptcy of Evergrande and Country Garden's defaulting as examples. "As far as China's property market is concerned, the 30-year property market bubble is bursting, and at an accelerating speed. Most real estate companies in China are facing the danger of bankruptcy."

According to statistics published by mainland Chinese media, in the first half of this year, Chinese real estate companies lost more than 460 billion yuan's ($63.2 billion) worth of market value. Among China's top 100 real estate companies with market capitalization, 70 companies have seen their market value decline. Sunac China, whose market value has shrunk the most, saw a drop of 68.28 percent.

The defaulting of real estate giants has spread to the financial sector. As of July 31 this year, 106 trust products have defaulted, with a total value of about 44 billion yuan ($6.04 billion), of which assets related to real estate investment accounted for 74 percent. There were also billions of dollars in defaults on financial products last year.

"Now the international community has recognized the risk of China's economic recession, and they are all concerned about the bursting of China's property market bubble," Cold Eye on Finance said.

"The property market crisis, the banking crisis, and China's local debt problem, when all these risks come together, the Chinese economy’s issues can't be resolved in the short term. This recession may last for a decade or two, or even thirty years."

He believes that "the CCP is not likely be able to survive this crisis. In the past, the outside world came to the rescue at critical moments of crisis. For example, when the economy was about to collapse, the CCP launched reform and opening up to attract foreign investment and technologies to survive. In 1998, many people were laid off, and the economy seemed to be collapsing with the banking crisis. However, China was allowed to join the World Trade Organization, which saved them."

"But now, it can be said that there is no force that can save China's economy. So the final result may be a big collapse, and China's economic crisis may officially break out. This time, the CCP won’t survive."

He warned, "If someone wants to invest now, they must not enter the Chinese stock market.”

Cheng Jing and Luo Ya contributed to this report.