May 12, 2017 / 9:32 AM / 8 months ago

Hong Kong bourse better off without Beijing's aid

HONG KONG (Reuters Breakingviews) - Hong Kong’s stock market is better off without Beijing’s support. State-backed institutions are preparing to support the bourse if needed before a likely visit by President Xi Jinping, Bloomberg reported on Thursday. This looks like fresh evidence of Beijing’s tightening grip on the city - and its belief that market prices are a tool to signal good news. Exporting that stance will dent Hong Kong’s appeal.

On the face of it, there is no need for any assistance. The equity market is humming right now, with the Hang Seng index up 14 percent so far this year. But any selloff before a July set-piece trip by Xi to mark 20 years of Chinese rule could be embarrassing. So think of this as the financial equivalent of keeping Beijing’s skies blue for the 2008 Olympics.

Still, the idea is doubly unwelcome. First, this echoes the botched attempt to stem crashes in Shenzhen and Shanghai two years ago through a welter of moves that included deploying a “national team” of forced buyers. Repeating the strategy would reflect an official attitude that price moves can be pressed into service for PR purposes. That is wrongheaded. Muffling the useful signals sent by markets may obscure the underlying reality, but won’t change it.

Second, this would be a new blow to the idea that things are done differently in Hong Kong, under the principle of “one country, two systems”. The bourse is not wholly free from interference or oddities - authorities propped it up during the Asian financial crisis, there are scandals, and today many listings are of mainland state firms, which help each other float at surprising punchy prices. But share prices are generally a reasonable reflection of what investors actually think. More broadly, the city’s standing rests on its commitment to free markets and the rule of law.

This may be just an unnecessary spot of bureaucratic paranoia. But there are plenty of other signs that China is gripping Hong Kong ever tighter, as with the recent disappearance of mainland billionaire Xiao Jianhua. For Hong Kong-watchers, this risks becoming another “sell” signal.


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