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China’s dilemma

LiveMint logoLiveMint 27-02-2017 Livemint

In the summer of 2015, China’s stock market bubble—created with Beijing’s tacit approval—finally burst. The $5 trillion rout made for an ugly sight. Unsurprisingly, government intervention was extensive, from limiting short selling to stopping initial public offerings (IPOs).

The government now feels comfortable enough with the recovery to change tack. The China Securities Regulatory Commission has announced that the stock market is ready for a larger supply of IPOs as well as other measures to attract both domestic and foreign capital.

The problem is the mixed messaging, as is apparent from the commission’s chairman Liu Shiyu’s comparing capital market financial moguls with “financial crocodiles”. Controlling the yuan’s depreciation remains a prime concern for Beijing—and that means capital controls, which can make it difficult for foreign investors to pull out at will. Little wonder that the chairman of global index provider MSCI warned about this last month. It remains to be seen how Beijing will manage the contrasting imperatives.

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