Beijing’s new game plan: use bonds to bolster stocks?
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The Olympics may have boosted China’s national self-esteem, but there’s still the problem of the country’s ravaged stock markets -- which are among the world’s worst performers this year.
Now the government may have a new plan to try to stop the slide in share prices. Bloomberg reports from Beijing this evening:
China may let investors sell bonds that can be swapped for shares to deter equity sales and support the stock market. The China Securities Regulatory Commission is studying exchangeable bonds as part of a package of measures to restrict sales of state-owned shares.
The plunge in stock prices on the Shanghai and Shenzhen markets -- which both are down more than 50% year to date -- in part reflects fears of massive selling ahead of shares that state-owned entities have controlled since many companies were privatized. Bloomberg notes that lockup restrictions are set to expire on shares accounting for more than half the combined $2.3-trillion capitalization of the Shanghai and Shenzhen markets.
More from the story, which quotes unnamed government sources:
Under the commission’s plan, shareholders wanting to sell after lockups expire would have to transfer their stakes to a third party such as a clearing house. They would then be allowed to sell bonds to investors that could be swapped for the shares later. The commission doesn’t have a timetable for the plan. . . . The rules haven’t been completed and it’s unclear if the bonds can be traded before they are turned into common stocks.
Sell bonds to investors? Wait a minute -- don’t we need the Chinese to put their money into our bonds, to solve our credit crisis?