Equities

China Data Curbs Spook Markets, Investor Confidence Wanes

China's data restrictions raise market uncertainties, impacting stocks as investors seek alternative information sources.

By Mackenzie Crow

4/13, 02:12 EDT
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Key Takeaway

  • China's restrictions on economic and corporate data access are causing market uncertainty, leading investors to seek alternative information sources.
  • Despite government efforts to boost market sentiment, including cutting trading costs and supporting share buybacks, investor confidence remains shaky.
  • The withholding of key economic indicators like the youth unemployment rate exacerbates concerns over the transparency and reliability of official statistics.

Data Restrictions Impact Market Confidence

China's recent tightening on the public access to economic and corporate data is causing concern among traders and investors, potentially hampering the nation's efforts to achieve robust economic growth. James Zimmerman, a partner at Perkins Coie’s Beijing office and former chairman of the American Chamber of Commerce in China, emphasized the importance of reliable information for business decision-making, noting that the lack of transparency is testing businesses' risk tolerance. The restrictions, endorsed by President Xi Jinping and other top leaders, have left the investment community seeking alternative sources of information, with some, like Beijing hair stylist and stock trader Wu Ming, relying on informal networks within the tech community due to a distrust in available data.

Christopher Beddor, Deputy Director of China Research at Gavekal Dragonomics, pointed out that the trend towards less transparency is not limited to corporate and economic data but extends to various other data series, leading to difficulties in making accurate comparisons over time. This opacity, according to Beddor, necessitates investors to apply a larger discount to asset prices to account for the increased uncertainty.

Government Actions and Market Response

In response to the market downturn, with the CSI 300 and the Shanghai Composite reaching their lowest levels since 2019, the Chinese government introduced a series of policy measures aimed at reviving market sentiment. These measures included cutting trading costs, supporting share buybacks, encouraging long-term investment, halving the stamp duty on stock trading, and injecting funds into the capital market. Despite these efforts, the market did not see a significant correction until February, when a trend towards recovery began, albeit with concerns about the sustainability of this upswing.

Leland Miller, CEO of China Beige Book, highlighted the growing importance of scrutinizing official data and narratives, especially as China's economic slowdown becomes more pronounced. The challenges of obtaining an accurate picture of economic conditions have increased, along with the risks for investors.

Restricted Data Sets and Economic Indicators

The decision to pause the release of data on the soaring youth unemployment rate, which had reached a record 21.3% in June, is one of the most visible signs of China's increasing control over sensitive information. This move, along with the restriction of other data sets such as land sales, currency reserves, bond transactions, and even academic information, raises questions about the transparency and reliability of official statistics. The withholding of data on land sales and the stability of foreign exchange assets, despite a growing trade surplus, are particularly notable examples of this trend.

Street Views

  • James Zimmerman, Perkins Coie (Neutral on China's economic environment):

    "In any operating environment, China included, business needs information to make informed decisions. Less or unreliable information creates uncertainty, testing business’ risk tolerance."

  • Christopher Beddor, Gavekal Dragonomics (Bearish on China's transparency):

    "Many data series have been discontinued in recent years or subject to revisions that make past comparisons difficult, or produce simply implausible figures... The opacity certainly chips away at confidence. It means that investors need to apply a larger discount to asset prices in order to account for the greater uncertainty."

  • Leland Miller, China Beige Book (Bearish on China's economic data reliability):

    "With concerns over official data quality and availability continuing to rise, it’s more important than ever not to simply swallow the government story... Just as the costs for investors of getting the story wrong have multiplied."