The Chinese government’s stock market stimulus is mostly helping the Chinese government

China's Transition
China's Transition

This article has been corrected.

China’s market regulators, central bank, state-owned media companies, and domestic banks and brokers have been working overtime to try to turn around the country’s falling stock markets—introducing a host of stimulus measures worth hundreds of billions of dollars.

On Monday, it seemed the combined effort may have worked, somewhat—the benchmark Shanghai Composite Index opened up nearly 8%, before swooning in afternoon trading into negative territory. It still closed up 2.4% for the day, led by a late uptick in massive state-owned companies like Industrial and Commercial Bank, which was up more than 9% for the day—bringing the index back practically to where it was three months ago.

But when you look beyond the performance of China’s biggest state-owned companies, things don’t actually look that positive.

The ChiNext price index, which is made up of Shenzhen-listed tech and small cap companies, fell into bear territory on June 25 and has not recovered. The Shenzhen Component closed down 1.39% Monday (July 6) and Hong Kong’s Hang Seng index was down 3.8%.

Publicly-traded, but non-government, companies like Huawei Technology, (the company is unrelated to the giant telecom provider), have not benefited from the hundreds of billions of dollars in government-sponsored stimulus that has been pumped into the market in recent days—the company’s stock fell 8.8% on July 6 in Shenzhen and is down more than 50% from a mid-June peak.

Investors should not expect a wider pickup, analysts from Hong Kong-based investment bank CLSA wrote today. Future government stimulus was likely to benefit state-owned enterprises, they wrote and recommended investors take profits (aka sell) other sectors including construction and power equipment:

The government policies until now have mostly been aimed at stabilising the market by loosening on margin financing or restricting short-selling. The new policies will increasingly be the government’s sponsored buying of the market. There is no other alternative as there are no buyers in the market, only sellers.

Ultimately, the analysts wrote, retail investors are headed out of the market, and back into last year’s China bubble—wealth management products and a “recovering property market.”

This article earlier incorrectly identified Huawei Technology as Huawei Technologies, the telecom giant. The two companies are unrelated.

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