Mainland media turns stocks killer

Editorial | Mary Ma 9 Aug 2021

The past week was undeniably one of the most chaotic for Chinese stocks in recent memory.

Although investors who had been betting their fortune on Chinese stocks for quite awhile were mostly prepared for government policy risk of some kind, they weren't ready for the tsunami of critical media reports taking aim at certain stocks in various sectors.

Needless to say, this must be a cause for great concern.

Had the same occurred elsewhere, investors might not have been taken aback so much since this would have been just part of the normal.

Their concern is that this is China where, generally speaking, all media are either state operated or state sanctioned - though some are considered to be central and authoritative, whereas others are positioned on the fringe.

If an article is carried by organizations like Xinhua News Agency or CCTV, it is often taken more seriously.

So the stock markets here and in the mainland were disrupted last week as Xinhua and its subsidiary publications released a burst of highly critical reports or commentaries. As a result, Tencent tumbled hard and tea company Nayuki crashed.

The challenges in front of investors were unprecedented. Added to the policy risk was a muddy field riddled with true and false information.

It may be difficult, but it is crucial to discern the truth from the false.

For example, if the crackdown on the private education sector in the mainland was genuine and supported by official documents, the investigation into ride hailing service app Didi was equally true with penalties meted out.

However, some were not so well founded. For instance, reports of cockroaches and decayed fruits in Nayuki's kitchens were strongly refuted by the beverage chain.

Regrettably, investors do not necessarily know what is actually going on.

Perhaps the thing that alarmed investors most in the past week was the involvement of Xinhua in those high-profile incidents, with the first attack coming last Monday.

Xinhua carried an investigative report alleging some Nayuki stores violated food safety and health regulations claiming cockroaches and rotten fruit were found in two stores in Beijing.

Nayuki stocks crashed in no time.

Then on Tuesday, Xinhua subsidiary Economic Information Daily mentioned a popular Tencent video game and called for greater curbs to prevent children from getting addicted to games. The article likened video games to "spiritual opium."

Perhaps, the words "spiritual opium" were too strong and the reference was later removed from the article. Nevertheless, Tencent had a really bad day.

The next day, Xinhua carried commentaries highly critical of e-cigarettes and the use of growth hormone to stimulate growth. Concerned stocks in those sectors plummeted.

It was on Thursday when a local newspaper in Shenzhen confronted the damning reports, accusing them of disrupting normal market orders.

This commentary was later deleted completely.

The issue is that mainland media ran numerous comments on social issues almost daily but, in the past, only a few made their way to become official policy.

Unless there is a new normal in place, the mainland media reports should be read with prudence.

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