Finance And China's View Of It At Home

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By Brett Hurll

Noted for his militant rhetoric towards the United States, 63-year-old Hu Xijin, a prominent nationalist Chinese media figure, is now urging his compatriots to put their faith in the nation's equities. On July 7th, he announced to his 25 million Weibo followers that he had entered the trading arena with an initial 100,000 yuan ($13,900) investment. His new clarion call is for Chinese citizens to divert from real estate investments and channel their capital into stocks.

The undercurrent of optimism in Chinese social media is stark, standing firm against the tide of somber market realities. Regardless of market performance, such upbeat discourse seems to have become the primary narrative presented to netizens. This is particularly striking as China's economic resurgence loses steam and the government intensifies its clampdown on dissenting or pessimistic perspectives. This paradigm shift is proving challenging for Western banking analysts tasked with maintaining accurate, timely communication with their global clientele.

The recent predicament of Goldman Sachs, a leading U.S. bank, exemplifies this new market environment. On July 4th, a Goldman analyst made waves by downgrading his forecast for several Chinese financial institutions due to concerns over bad debt tied to local governments. This advice sent shares in these banks, including the Industrial and Commercial Bank of China, into a downward spiral.

The government's retort was swift and pointed. Securities Times, a state-run publication, rebuked Goldman on July 7th for what it alleged were misguided assessments. Subsequently, on July 10th, Banxia Investment Management, a major hedge fund, asserted that Goldman's allegations would soon be disproven. China Merchants Bank, one of the downgraded lenders, also accused Goldman of misleading investors, according to a statement obtained by Bloomberg.

Goldman's analysis appears to have struck a particularly sensitive chord, given the Shanghai Composite's dismal performance – down more than 5% since its high in early May. With the index largely stagnant around the 3,200 mark for over a decade, save a few boom-and-bust periods, the initial uplift in economic activity early this year had sparked hopes of a revival. Now, most economic indicators are reflecting a slowdown.

Inflation data released on July 10th indicated stagnant year-on-year consumer prices in June, pointing towards reduced demand. According to HSBC, manufacturers' goods-price disinflation is also on the rise due to an oversupply. Moreover, home sales' seven-day moving average as of July 9th was down 33% year-on-year, as reported by Nomura.

Commenting on these unfavorable market trends on social media is becoming increasingly fraught. After alluding to negative market trends, three prominent bloggers, including noted financial commentator Wu Xiaobo, found themselves barred from Weibo in late June. The social media platform accused Mr. Wu of disseminating false securities industry information and challenging government policies.

The situation is equally testing for established firms. A financial data provider recently had to restrict overseas clients from accessing certain data, including detailed real estate sector indicators. Consulting companies are under fire for delving into contentious subjects. Recently, Chinese stock market regulators have begun advocating a reassessment of underperforming state-owned enterprises, emphasizing societal contributions over annual returns.

As the landscape changes, Chinese netizens might find themselves relying more heavily on persistently positive commentators like Li Daxiao, a well-known fund manager with a reputation for bullishness. Even in the face of market downturns, Mr. Li has remained so optimistic that authorities have had to intervene, advising him to tone down his cheerleading to prevent naive retail investors from losing their savings. On July 7th, following a difficult trading day, Mr. Li shared a comforting message with his followers: "Only by enduring the mundane can we savor future success." A promising sentiment indeed, but only time will tell how this optimism fares amidst the growing economic challenges.