March 22, 2021
China’s ‘Two Sessions’ goes off script
Since their peak in mid February Chinese markets have lost $1.3 trillion dollars in value. For the Chinese government the timing has been terrible. From March 4th to March 11th 3,000 delegates from across China converged in Beijing for the biggest event in China’s political calendar. Often called the “Two Sessions” in reference to the simultaneous meetings of the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC), Beijing has traditionally gone to great lengths to ensure the world outside conforms to the narratives pushed inside its sessions. In past years, factories have been closed down to ensure blue skies and fireworks sales halted to minimize any chance of a noisy disruption. These efforts have extended into financial markets as well with speculation that China’s “National Team”, a series of state-related bodies that Chinese authorities rely on to influence markets, are active in the days leading up to the annual sessions to quietly inflate stock prices.
However, this year’s efforts to match the reality outside the meetings with the content of the NPC’s speeches backfired. As party leaders were extolling the supposed virtues of their system compared to the in the West, the Shanghai Shenzen CSI 300 had fallen 6% during the sessions themselves and 14% from its peak in mid February– the index’s steepest fall in years. This continued despite state media reports on March 9th that China’s “National Team” had intervened and bought stocks to shore-up the market. Chinese regulators went so far as to ban the term ‘Stock Market’ from social media search.
A range of factors likely caused this drop. As Senior Fellow Jeremy Mark noted, Beijing’s announcement of tighter fiscal policy and the growing risk of asset bubbles may have spooked foreign investors. Guan Qingyou, a prominent Chinese economist, has also suggested the drop is a symptom of market improvements that Chinese regulators have tried to advance since 2019. Qingyou argues that the principal cause for the rout was nervousness about inflation in America. This suggests Chinese markets are more intertwined with global finance than before. So, despite the unfortunate timing for the CCP, this could also be viewed as a sign that reforms to globalize Chinese finance are working. But it is unclear if the government can tolerate the kind of volatility capitalist countries are accustomed to. As Chinese leaders are discovering, the arranged marriage between authoritarianism and capitalism can be a messy one.
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