Chinese stocks were hit hard on Monday. Traders are grappling with a bear squeeze and mulling the prospect of tighter domestic policy in the world's second-largest economy. Growth stocks, tech stocks and other momentum trades bore the worst of the selling.
The CSI 300 index of the largest companies in Shanghai and Shenzhen fell 3.5% on Monday, its worst day since last July. In Hong Kong, the Hang Seng fell 1.9%. Mainland Chinese shares have now dropped 12.5% from their highs in early February.
The Hang Seng Tech Index plunged 6.4% on Monday, and has now shed 20.5% of its worth since February 17. It consists of the 30-biggest tech stocks in Hong Kong such as Alibaba Group Holding (BABA) , JD.com (JD) , Lenovo (LNVGF) and Xiaomi (XIACF) . The ChiNext Index of "next-gen" stocks in Shenzhen fell 5.0%.
Chinese policymakers are indicating that they will gradually take away the punch bowl of Covid-direct stimulus measures over the course of the year. The Beijing political elite are currently gathered for China's biggest annual political gabfest, and have announced a modest growth target for the year ahead.
That suggests officials will turn their attention to reining back property prices and preventing asset bubbles. They may also resume their efforts to deleverage the enormous state-owned enterprise sector, where Beijing would like to see greater efficiency and international competitiveness.
Monday's share-price movements reflect the restrained tone set at the National People's Congress, China's legislature, which is currently meeting in Beijing.
On Friday, China set a growth target of "over 6%" for 2021. It was a surprise that Premier Li Keqiang established a firm target, and the figure was surprisingly low. Given the low base of last year, the Chinese economy is likely to rebound 8.9%, according to Oxford Economics.
The modest bullseye suggests that Chinese policymakers are looking to contain that growth, and avoid the mistakes made when bailing out the economy in 2009. At that time, China announced an enormous ¥4 trillion (US$586 billion back then) stimulus package to ward off the effects of the Global Financial Crisis.
The 2009 bailout caused a huge surge in debt that policymakers are still trying to unwind. Most of the money went to state-owned banks and local governments, which embarked on an infrastructure-spending binge. By 2011, a nationwide audit showed that local governments held the equivalent of US$1.6 trillion in loans, around 20% of which would have to be written off.
Beijing is intent on avoiding a repeat of those mistakes. China opted not to formalize a target for 2020 due to the uncertain outcome of the coronavirus pandemic. In setting this year's mark, Premier Li said China would not continue issuing special Covid-bailout bonds, and will scale back its bond-issuing program to C¥3.65 trillion, down from C¥3.75 trillion in 2020.
This is the first year of China's newest five-year plan. Its growth target for the 2016-20 edition was "more than 6.5%," but Chinese growth is likely to slide across the course of this 14th instalment. After a blockbuster rebound in 2021 - you're hard pushed to find an estimate that suggests growth will fall below 8% - the annual rate will likely hover just above 5.5% through 2025.
Official figures released on Sunday show that Chinese exports rose 32.3% for the January-February period. Combining those two months accounts for the shifting date of the Lunar New Year. A virus-induced slump saw exports fall 9.7% for the first two months of 2020.
China is sizing up the United States under President Joe Biden, and has a couple of times in recent days expressed a desire for U.S. trade tariffs on Chinese goods to be lifted. But it has given no sign of addressing concerns over China's violations of democratic and social rights in Hong Kong, or its imprisonment of the Uighur minority in Xinjiang in detention camps.
Taiwan is also an issue, after Biden invited the equivalent of Taiwan's ambassador to the United States to his inauguration. Foreign minister Wang Yi weighed in on Sunday, stating that China hopes the Biden administration will make a "clear departure" from the "dangerous practice" on Taiwan set by the preceding administration.
Hong Kong also faces a drip, drip, dripping away of its influence as the banking capital of greater China. In the latest blow, Commerzbank (CRZBF) will reportedly withdraw from the city, as well as Luxembourg and Hungary, as part of a restructuring. Asia sales will shift to Singapore, according to Bloomberg, which first reported the news.
Stocks also drifted in Japan on Monday, with the Topix index of all major shares in Tokyo down 1.6%. The Kospi in Seoul fell 1.0%, after South Korea confirmed last week that its economy shrank 1.0% last year, the first decline since the Asian financial crisis in 1998. But Chinese shares saw by far the heaviest selling. Australia's All Ordinaries Index even rose 0.4%, and the Straits Times index finished up 2.0% on Monday.