Hello everyone, welcome to “News Perspective,” I am Li Xin.
Today’s focus: China’s stock market turmoil, strange occurrences! Thousands of stocks continue to be sold off by main funds, 172 listed companies reduce their holdings! Retail investors incur heavy losses! Over 400 billion yuan of fines confiscated nationwide two years ago! Local governments are accused of being “bandits” robbing money.
On Tuesday (October 15th), the three major A-share indexes collectively plunged. By the end of trading, the Shanghai Composite Index fell by 2.53% to close at 3201.29 points, barely holding the key level of 3200 points; the Shenzhen Component Index fell by 2.53% to close at 10066.52 points; the ChiNext Index fell by 3.22% to close at 2085.99 points. Nearly 4500 stocks declined in the market, with securities firms, insurance, and banking sectors all trending downwards. Haitong Securities plunged over 7%, Guotai Junan, Dongxing Securities, and others fell over 5%; Construction Bank and ICBC fell by more than 3%, creating a widespread downturn.
The Hang Seng Index in Hong Kong fell below 21,000 points, with the technology index dropping by over 4%. The Hang Seng Index briefly rebounded in the morning but the drop in A-shares led to another decline. In the afternoon, it plunged 938 points, hitting a low of 20154 points, nearing the 20-day moving average. By the end of trading, the Hang Seng Index fell by 774 points to 20318 points.
The technology index dropped by 4.6%, with only two out of the 30 component stocks rising. Meituan fell by nearly 7%, Alibaba by over half, failing to hold onto its gains.
Moreover, on the 15th, the renminbi suddenly plunged during trading, with the onshore renminbi against the US dollar briefly falling below the 7.12 mark, dropping by over 400 basis points intraday, while the offshore renminbi fell below 7.13, dropping by over 300 basis points intraday.
The previous day, the three major A-share indexes opened higher on Monday. The recent intense volatility in the Chinese A-share market has attracted international attention. Since the end of September, the CCP government has announced a series of measures to boost the Chinese stock market. However, with the rapid rise in A-shares, the decline is just as quick. It took less than half a month for the A-share market to rise from 2689 points to 3674 points. But the market fell back to 3187 points, a drop of nearly 500 points in just four trading days. The level of 3227.64 points is a critical technical threshold for the A-share market.
When stock prices rise, thousands of stocks continue to be sold off by main funds. What does main fund refer to? To put it bluntly, it refers to the national team, the manipulators of the stock market. Main funds in A-shares include publicly regulated mutual funds, social security funds, and state-owned central Huijin funds, among others. Main funds can influence the stock market, even control the medium and short-term trends of the stock market, greatly affecting individual stocks and sectors, while ordinary retail investors often become the meat of the main players.
On the day of the rise in stock prices, the net outflow of main funds in the Shanghai and Shenzhen markets still totaled 4.782 billion yuan. In 19 industries where main funds net outflowed in the fields of biomedicine, power equipment, automobiles, and non-ferrous metals, five of them saw net outflows exceeding 1 billion yuan.
According to data from Data Bao, as of Monday (14th), a total of 1097 stocks in the Shanghai and Shenzhen markets had been continuously sold off by main funds for five days or more.
In terms of the total size of the net outflows of main funds, East Money Securities accumulated a net outflow of 21.933 billion yuan over six consecutive days, with net outflows accounting for 8.15% of transaction volume. Moutai followed closely behind with a net outflow of 3.967 billion yuan over six days, with a stock price increase of 1.37%, and so on.
A well-known internet financial service platform, East Money Securities, sold off by main funds, has shareholders including the Hong Kong Central Clearing Limited and the China Construction Bank.
During this round of A-share market rally, East Money Securities’ stock price doubled at one point and hit a historic high, closing price on October 11th up by 94.32% from September 23rd close, reaching a peak price of 170.27% up on October 9th from the September 23rd close. Currently, East Money Securities’ stock price has increased by 24.53%.
However, the performance of East Money Securities in the first half of this year was not ideal. Wind data shows that operating income dropped by 28.83% year-on-year, with investment banking business down by 73.37%.
It is evident that during this upward trend in A-shares, the national team inside A-shares is actively reducing its holdings, cashing out and exiting, while retail investors have become the bagholders. This perfectly accomplishes the goal of using the stock market to help state-owned enterprises with relief and financing. Meanwhile, major shareholders of listed companies are also reducing their holdings for cashing out.
From September 24th to October 12th, over 270 listed companies have announced shareholder reduction notices. Between September 24th and October 11th, 172 A-share listed companies issued reduction notices. Among the selling shareholders, there are 27 controlling shareholders or actual controllers.
On October 11th, the Securities Regulatory Commissions of Beijing, Shanghai, Shenzhen, and Jiangsu had to take action to crack down on irregular holdings reduction activities in block trading. The Shanghai and Shenzhen securities regulatory commissions issued notices: Shareholders of listed companies are not allowed to cross the red line of irregular reductions; connivance, malice, and high-frequency short selling are treason.
With this regulation in place, the stock market saw a rebound. However, it is not sustainable. After all, this type of regulation can only target private entrepreneurs and private major shareholders, how can a small securities regulatory commission control state-owned enterprises and main funds?
On October 10th, Goldman Sachs in its trading report stated that after a week-long holiday in China, hedge funds sold a record number of Chinese stocks on October 8th. Three quarters of the stocks sold off by hedge funds were A-shares, the rest were Hong Kong-listed stocks.
These foreign funds may have been trapped in the market for a long time, and with this market rally, many foreign funds finally got out, as the CCP’s stimulus turned the Chinese stock market into an ATM for foreign funds, allowing them to recoup their losses in the Chinese market over the past few years.
Retail investors have suffered far more losses than professional investors. The Shanghai Stock Exchange once announced the profit situation for different types of investors in 2017, showing that individual investors contributed 82.01% of the trading volume but received less than 9% of the profits. In contrast, institutional investors accounted for less than 18% of the trading volume but received over 91% of the profits.
During the prolonged downturn from the end of 2022 to mid-2024, it is estimated that individual investors incurred losses of around 4 trillion yuan, with an average loss of about 100,000 yuan per household.
Recently, a large number of young investors have entered the stock market, especially with the number of investors under 30 surging. However, this new group of investors has suffered significant financial losses this time. Complaints from retail investors abound online. One netizen said, “I lost 40% in three days, today I sold half (of my stocks), and my capital is now only 8000 yuan.”
Another netizen expressed, “Honestly, I hate stocks. If I had the ability, I would make stocks disappear. This stock market trend has led a group of inexperienced young people to rush into the stock market, using their dowry money for marriage and the down payment for a house. Those without money turn to lending platforms, and those who can borrow money have brought acquaintances into the stock market.”
Some investors lament that they raised funds through online loans to enter the market, only to end up losing everything. A programmer born in the 1990s in Chengdu, Mr. Yang, entered the market on October 8th and lost 320,000 yuan in just four days. With the stock market turmoil, A-shares plummeted by 16% in 3 days, and the renminbi dropped by 1600 points during the week, 2% in two weeks. In the coming weeks, the renminbi breaking 7.3 and A-shares breaking 3000 is likely. What will the trapped retail investors do?
On October 13th, there were pedestrian incidents caused by out-of-control vehicles on Ziwu Avenue, Xi’an, Shaanxi, and Yue Ming Street in Boshan District, Bengbu, Anhui. Can these successive social tragedies be merely accidental?
Senior financial expert Zhang Hongliang pointed out that the operation of the Chinese stock market is largely controlled by government policies, making it difficult for ordinary investors to profit in such an environment. He said, “A large amount of capital also belongs to the government, and the hands manipulating the stock market also belong to the government. It has almost no connection with public opinion, society, or the economy. Just like what happened ten years ago, this stock market is driven by policies, with the characteristic of rising fast and falling fast. This kind of market operation has a critical point, and once exceeded, the stock market will crash very quickly.”
It is advised to stay away from the Chinese stock market and avoid blindly leveraging investments. The Chinese stock market is not an indicator of the economy, nor a place where ordinary people can profit from long-term investments. It is a wealth-extracting machine controlled by the government, functioning as a slaughterhouse where ordinary retail investors are destined to be slaughtered.
The real estate market in mainland China continues to weaken, with house prices falling in 70 cities nationwide. The luxury housing market has experienced a major shift. The real estate market in Shanghai has always been a focus nationwide, and the luxury housing market is particularly popular among high net worth individuals. However, recent market performance indicates that even luxury second-hand housing is facing unprecedented challenges. Some top-tier luxury homes, even after discounts, are not attracting buyers.
According to data from the National Bureau of Statistics of the CCP, in August this year, only Shanghai and Nanjing saw a month-on-month increase in new home prices among 70 cities nationwide, with an increase of 0.6% and 0.3% respectively, while Xi’an remained flat compared to the previous month, and the other 67 cities all experienced declines.
Overall, the price reduction of residential properties in various cities has expanded. According to official data, first-hand residential property prices in first-tier cities fell by 0.3% month-on-month. Beijing, Guangzhou, and Shenzhen dropped by 0.5%, 0.5%, and 0.8% respectively, while Shanghai rose by 0.6%. As for second-hand property prices, Beijing, Shanghai, Guangzhou, and Shenzhen saw declines of 1%, 0.6%, 7%, and 1.3% respectively.
A recent deal in Shanghai’s luxury housing market set it on fire — a 406-square-meter flat in Green City Huangpu Bay Tower 1 was listed at 68 million, with a price per square meter of 167,000. The owner originally asked for 108 million, but now has dropped it by 40 million. The owner claims they are not in urgent need of money but are anticipating a long-term downturn. Consequently, a 40 million reduction saw the property sold within two and a half days.
In summary, the national real estate prices are mostly at a low level, and the price reductions are far from being fully adjusted.
China’s economy is slowing down, the government lacks money, and a mainland scholar recently revealed that the CCP collected fines and confiscated income nationwide totaling 428.3 billion yuan in 2022, reaching a 10-year high.
According to data from the CCP Ministry of Finance, in the first seven months of this year, national tax revenue fell by 5.4% year-on-year, while general public budget revenue decreased by 2.6% from the same period last year. Conversely, non-tax revenue increased by 12%, and according to local data, income from fines increased by 26.5%.
Online data shows that in 2013, the nationwide income from fines and confiscations in China was approximately 306.2 billion yuan, which increased to around 311.3 billion yuan in 2020 and 371.1 billion yuan in 2021. In 2022, income from fines and confiscations reached 428.3 billion yuan, accounting for 2.1% of public budget revenue, the highest in nearly 10 years, amounting to 11.57% of non-tax revenue.
Why has income from fines and confiscations unusually increased? It is easy to understand. One reason is that the financial income structure of local governments is irrational, heavily reliant on related land revenue for over 20 years, and the housing market’s weakness has had a serious impact. Another reason is the spending habit of local governments, which are simply unable to reduce their expenses. If there isn’t enough financial support, it could lead to social issues, group incidents, and so on. For example, recent incidents of healthcare workers “chasing grain” occurred in Qingfeng County, Henan, and Xinxiang City, with local government officials being owed their salaries.
Now, the economic pressure is too great, there is a shortfall in fiscal revenue, and civil servants and police are unable to pay salaries. If they lay low, local government operations will be affected. Thus, the CCP allows local governments to figure it out on their own. Hence, local governments have resorted to setting up checkpoints and collecting money directly on the streets. How far is the CCP’s local government from being bandits or the underworld now?
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