Market orthodoxy
China’s planners won’t let go of the stock market
Regulators just can’t stop meddling in China’s stock market. Watchdogs have reportedly cut off fundraising in hot sectors, and may restrict overseas companies wishing to relist at home. Though their desire to avoid a repeat of last year’s bubble is understandable, bureaucratic intervention stunts China’s equity market.
Two and a half years after rulers pledged a “decisive” role for markets in the world’s second-largest economy, they remain reluctant to let supply and demand set the value of listed stocks. Last week, the China Securities Regulatory Commission said it was studying companies, currently listed overseas, which are pursuing so-called back-door listings on the mainland. According to Caixin, the CSRC has also stopped listed firms from raising capital to invest in speculative industries like internet finance, video games and virtual reality.
The desire to prick bubbles before they inflate is forgivable. Memories of last year’s debt-fuelled stock market boom, bust and failed bailout are raw. Botching the response to the crash apparently cost the CSRC’s last boss his job. Besides, the retail investors who still hold the majority of tradeable equities are prone to blaming authorities for any losses.
In an attempt to restrict supply, the CSRC has reined in initial public offerings. So far this year regulators have permitted 43 new listings, raising just over $3 billion, according to Thomson Reuters. In the same period last year, they waved through 122 offerings raising $11.5 billion.
Not surprisingly, some of the hundreds
Consolidation makes sense, too. By global standards, Japan’s auto sector looks oddly fragmented. Industry leader Toyota recently swallowed subsidiary Daihatsu. But that still leaves Nissan, Honda, Suzuki, Mazda, Mitsubishi Motors and Subaru — not to mention other truck- and motorcycle-makers. With the exception of makers of supercars, scale matters hugely for profitability. And Mitsubishi Motors is a tiddler, selling just over a million cars last year.
A tie-up with Nissan would allow the duo to work more closely on small cars: Mitsubishi Motors’ testing problems surfaced in vehicles that the group supplied to Nissan. The presence of the $41-billion Nissan on its smaller rival’s share register — and in its boardroom —might of companies waiting for approval for an initial public offering (IPO) have turned to already-listed groups to tap the market. Follow-on equity offerings in China have raised $19 billion this year — close to the $20 billion issued in the same period of 2015. Onceobscure stocks have become speculative darlings as investors try to guess which shell companies will become a vessel for groups seeking a listing.
By trying to rein in such speculation, however, the CSRC is effectively second-guessing market decisions about how best to allocate capital. This leads to poorly developed stock markets, which in turns leaves China overly dependent on debt. Just four per cent of the new financing pumped into the economy in the first three months of the year was in the form of equity. That’s unlikely to change as long as regulators keep tinkering. also speed up the adoption of better corporate governance.
More broadly, the duo could cut costs in production, development and procurement of other products, including compact cars, pick-up trucks, and especially electric vehicles — already a strength for both sides.
Ideally this would be a first step to a full takeover — assuming the other Mitsubishi Group firms that hold big stakes in their sister company agree. But even an alliance would be helpful. Ghosn, after all, has reaped huge benefits by joining forces with Renault, even though Nissan stopped short of merging with the French group. The duo boasts that the partnership led to ^3.8 billion of cost cuts and revenue boosts in 2014. It can be useful to travel in convoy.