How will Chinese Securities Market change in 2008?

Maybe we can find some clue from Wen Jiabao’s 2008 government report, in which he defines the job of government in 2008 is to “… convert SOEs into stockholding corporations;” “…improve corporate governance, carry out policy-mandated closures and bankruptcies, separate SOEs’ secondary businesses from their core businesses, and convert the former into independent companies; “”…improve the structure of the capital market, promote steady and sound development of the stock markets, strive to improve the performance of listed companies, and maintain an open, fair and equitable market environment.”

Note that there is no such things in Wen’s report as “protection of minority shareholder” or “solve the problem of controlling shareholder’s abuse of power in securities market.” The government’s priority is rather the the reform of SOEs. The securities market is an instrument in such reform, not a goal by itself. Hence we can predict that in 2008, although securities market reform will continue, it will not bring in any fundamental change. Chinese minority shareholders–1600 million in total according to CSRC’s latest update–expected that the government could redeem the securities market from a casino style one, but the government now has let them down. The market will continue to be a playground of SOEs. If they do better this year, which is very unlikely to happen, the benefits may trickle down to the minority shareholders under the condition that the epidemic market speculation is uprooted, which is also very unlikely to happen.

It doesn’t sound good to securities investors. Well, don’t jump to conclusion so quickly. I have to stress that my comment is solely based on the publicly available government report, and it is well known that Chinese government does not always put everything under the sun. The government may very well have an agenda that does not closely follow the report.

See full text of the 2008 Chinese government report.