China's stock markets slumping to 8-year lows
The future of China's deeply troubled stock markets went from bad to worse,
slumping to fresh eight-year lows as regulators' plans to solve the overhang of
non-tradable government-owned shares heightened fears more losses lie ahead.
The composite stock index of the Shanghai bourse picked up slightly to 1,005.82 points at midday, but it was still lower than Monday's opening of 1,010.38 points.
The benchmark index covers yuan-denominated A shares and foreign-currency B
Regulators first tried to resolve the overhang of state shares in 2001 to raise funding for China's fledgling social security system but panicked investors sent stocks plunging, forcing authorities to abort the plan.
Since then, Beijing has repeatedly vowed to fix the problem but only soiled the wound by constantly balking at private and institutional investor demands that their interests be protected in any sale program.
The market last peaked at 2,245 points four years ago.
It was no surprise the markets continued an inexorable slide, said a Shanghai fund manager, refusing to be named.
"The market has been falling because the first batch of plans were really not that good. We don't think the next batch will be very good either," he said.
The reason China's stock markets are on the verge of collapse has to do with the original design and purpose of the exchanges.
Fifteen years ago, the central government in Beijing, looking for a way to avoid paying enterprises' heavy debts and fund a welfare system which once was the responsibility of chronically money-losing state-owned companies, struck on the idea of creating self-serving capital markets.
Under given quotas, provincial officials selected weak enterprises in hopes of clearing the mountains of debt built up in the days when workers were provided from the cradle to the grave by enterprises.
Although market players recognize that the state holdings must be disposed of, years of half-baked, non-committal government measures has made the average investor rightly suspicious.
"Investors couldn't help but doubt that this state shares sale plan is not something positive," said Yi Linming, analyst at Industrial Securities.
"And the more they doubted, the more the market panicked and the more the market panicked, the more they doubted," said Yi.
Now the overseer's slower and more-measured approach to push through reforms, while widely appreciated as necessary, remain under fire because investors complain that the government is looking out for its own interests only.
"What the investors need is compensation, and it is the government who should be responsible for it," said Yi.