Alibaba Surges 19% as Beijing Commits to Keeping Markets Stable

Yesterday, the Hong Kong stock market witnessed an impressive price rally, posting double-digit gains following Beijing’s pledge to support the equities market. Reports revealed that the State Council’s Financial Stability and Development Committee promised to keep the market steady and encourage international share listings.

Following the revelation, Chinese stocks immediately started to post notable gains. Tencent and Alibaba surged by roughly 20% and 19%, respectively. The Hang Seng index increased by 9%, while the Hong Kong China tech index grew by 12%. However, BTC remained largely unaffected by the news, trading mostly stable near $40,000 through the day.

Recent Worries Over China’s Economy Satiated by Beijing’s Commitment

The new development comes as Beijing looks to take charge and aid the recovery of its ailing economy. Since the Covid pandemic, China’s economy has performed poorly with several industries, including its real estate sector.

The Chinese Government has said it will take care of some of the dangers real estate developers face. This would be good news for housing giants Evergrande, which was on the verge of collapsing after running out of money. 

Late last year, many believed that the Evergrande housing crisis would spell doom for Beijing’s economy, and it did look so for a while. Along with several other real estate corporations, the company owed more than $300 million and could not meet its debt obligations.

Consequently,  Fitch, a rating agency that assesses a company’s financial risk, declared Evergrande in default.  The problem alarmed investors, who were concerned that the crisis would spread to China’s property and banking industries.

Alongside the Evergrande saga, the Chinese economy has also grappled with a renewed spread of Covid. Shares on the Hong Kong stock exchange plummeted early this week as health authorities reported the continued virus surge. This also led to a murky economic outlook before the government’s announcement and subsequent share rally.

With its economy on the verge of collapse, Beijing has continued to roll out several measures to prevent a further downturn. For Evergrande, it stepped in without enacting a statewide bailout. Instead,  relevant government agencies and local governments carried out risk disposal and resolution work to mitigate a potential contagion.

Recently, several news outlets have reported that certain Chinese banks have slashed mortgage rates, granted subsidies, and allowed developers to use escrow funds. State-owned developers have also been pressed into buying some problematic builders’ projects to help alleviate the sector’s liquidity crisis.

Combined with the new announcement to handle some of the risks for property developers, Beijing is doing all it can to ensure the sector thrives again.

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China to Support Chinese IPOs in the US

Alongside helping the real estate sector, Beijing also said it would support Chinese Initial Public Offerings (IPOs) abroad.  It also called for the closure of its tech crackdown after making progress in its planned corporation with US regulators over US-listed Chinese stocks.

Following the Covid-19 resurgence and the Ukraine crisis, investors’ anxieties about economic growth exacerbated fears of forced Chinese stock delistings from US exchanges. JP Morgan’s China internet analyst Alex Yao revealed the bank had downgraded 28 stocks. He further called the sector “uninvestable” for the next couple of months.

The US Securities and Exchange Commission(SEC) also announced last week that five Chinese companies’ stocks listed in the US might be delisted. It was the first time the SEC had singled out specific stocks to break the Holding Foreign Companies Accountable Act. The proposal, passed in 2020, allows the SEC to delist Chinese businesses from U.S. exchanges if it cannot review company audits for three years consecutively.

However, because of Beijing’s concerns about information security, Chinese enterprises have often refused to allow such audits. That is set to change now after China Securities Regulatory Commission said it had achieved progress in contact with the US Public Company Accounting Oversight Board. It revealed,

“We believe that through joint effort both sides will, as soon as possible, be able to make arrangements for cooperation in line with the two countries’ legal and regulatory requirements,”

The Chinese government is loosening its policies to ensure its economy survives current global macro headwinds. It is important it does so to help an ailing economy rebound and allay investor fears over the viability of Chinese stock. So far, the initial results have shown that they are definitely on the right track.

Do you think the new measures put in place by Beijing would aid the recovery and growth of its economy? Let us know your thoughts in the comments below.