Shock as company tells China truth

Whether it’s for reasons of realpolitik, greed, gullibility, herd mentality or fear, the world continues its compulsive panda-sycophancy. ASEAN nations rewrite statements on regional security to avoid offending Beijing. Leaders of proud, prosperous and nuclear-armed democracies cravenly cancel meetings with the Dalai Lama out of deference to the Chinese regime. Hollywood amends scripts to appease Chinese nationalism. Consumer goods companies break sponsorship deals with celebrities who commit anti-Communist thought crimes. The UK and Sweden hesitate even to comment when Chinese agents kidnap and extract false confessions from their citizens.

It seems the whole planet is obsessed with pre-emptive shoe-shining of the Middle Kingdom. A few rare exceptions stand out. The New York Times remains largely defiant in the face of Beijing’s wrath over revelations of senior leaders’ family wealth. The Queen damns Chinese officials as ‘very rude’. (Just in: Obama.) Taiwan’s voters and new cat-loving spinster splittist President seem determined to stand their ground. God, despite some recent wavering by His representative on Earth, still boldly refuses to join in the kowtowing.

And to this noble list we can now add MSCI. The company is in the slightly arcane business of compiling stock and other market indexes. Investors use these lists and sub-MSCI-logolists of equities and equity classes (company size, industry, country, etc) as benchmarks. If MSCI adds or increases the weighting of a particular component in an index, investors will buy more of it – to track the index. Inclusion of a company or wider market in an index also bestows status and face. (Hong Kong’s own Hang Seng Index has increased the number of constituent stocks over the years partly because certain older, withering, local family-run MSCI-Ch-announcecompanies – who shall remain nameless – kicked up a big fuss when the compilers considered dropping them in favour of newer, bigger listings on the stock market. It was partly because the move would reduce demand for their shares, but also because of the humiliation.)

China’s leaders want MSCI to include the mainland stock markets in the company’s emerging market index – essentially because they think it’s a matter of prestige and one of those overdue status symbols that China has ‘earned’, like having an aircraft carrier or a science Nobel. We are getting close to the national pride/arrogance/victimhood/self-pity complex here.

While Chinese officials crave inclusion of their sizable stock market, MSCI has been brutally honest and said ‘no’. For the third time. The reasoning is inescapable. Real, Bloom-MSCIgrown-up stock markets allow international investors to put funds in and take them out as and when they please; China, with its capital controls, does not. Proper stock markets are not subject (mostly) to weird, unpredictable government interventions, arrests of short-sellers, etc; Communist rule-of-man China’s is. Also, Chinese companies are allowed to suspend trading whenever they feel like it and obscure information (and, although MSCI are too polite to say so, many are run by corrupt scumbags who might disappear or be disappeared any time). Peru, on the other hand, passes muster.

So MSCI joins the small elite group of people who dare to treat China as a normal place, nothing special, not an object of automatic toadying. Presumably, the company – unlike Lancome and 99% of the world – sees little to gain from wanton groveling to the panda, and more to lose by tarnishing its international integrity. It has also mentioned the possibility of re-re-reviewing the subject before too long, which should mollify any ‘hurt feelings of the Chinese people’. Aficionados of major Beijing bed-wetting temper-tantrum meltdown freak-outs will probably have to wait for the Court of Arbitration’s ruling on the South China Sea.



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8 Responses to Shock as company tells China truth

  1. I saw this on SCMPravda before I saw it here. It must be important then. On the other hand, you might be forgiven for thinking it not all that important.

    I think you believe Hong King is all about a series of political events aimed at the gradual destruction of Communism when in fact Hong Kong is in a socialist revolution aimed at the destruction of Capitalism.

  2. A Poor Man says:

    I’m guessing Bloomberg’s website is blocked by the Great Firewall

  3. PCC says:

    An excellent commentary from Hemlock. Respect.

  4. BUSYBODY says:

    I can’t imagine PRC caring one hoot, about MSCI’s shenanigans — the financial universe is so full of choices & choosers, what extra benefit on earth can MSCI inclusion provide??

  5. Headache says:

    The PRC does care about inclusion in MSCI indices, more or less for the reasons Hemmers has identified: face and credibility for its infallible leaders, external validation of the country’s fixed economy and financial markets, and much lusted-after respect on the international stage. The SCMP reports it because it is a topic that has been puttering on for years and on which the main players periodically make statements while nothing much changes (see also the HK-SZ stock connect), hence easy journalism.

  6. Chinese Netizen says:

    @BUSYBODY: The CCP craves RESPECT and inclusiveness in the “world community”. It gives them face…makes them think they are players on the international stage instead of being viewed as the dirty lowlifes they are that companies MUST, unfortunately, deal with just to crack the China market.

    The Queen of England said it best recently…

  7. Sun Wu Kong says:

    “compulsive panda-sycophancy” … great fucking line Hemmers (‘scuse my French).

    Love it when the invisible hand of Adam Smith whacks the CCP upside the head… he does get his arm twisted enough on the other side of the border as it is.

    Although short sellers are not arrested in the West, there is circumstantial evidence that LIBOR riggers are murdered (or, multiple self inflicted nail gun shots make great sense as suicide method… Must have been in great spiritual pain, at how much he had been fucking over his fellow man… A la the ghost of Vince Foster…)

    And the HFT gang and dark pools are positively absolutely corn holing the scheissen out of retail traders … when is it legal to front run the market? when your name is Citadel and you are trading on behalf of the Fed perhaps… Bring on the IEX revolution, Mr. Katsuyama and Mr. Hunsader

  8. BUSYBODY says:

    CCP earns respect from it’s own PRC citizens, for a very creditable prosperity, achieved by “state capitalism”. Nothing wrong with that? And nothing to do with kowtowing from anywhere else. So next, PRC/CCP/Xi goal, seems to be “eradicating corruption” & achieving a more equitable distribution of that prosperity. Anti-corruption efforts seem needed globally, witness Sanders & Trump in the U.S. And in HK, real-estate corruption trial of SHK & Rafael Hui, was interesting, but was it effective?? Or was it a publicity stunt. Some relevant reporting would be interesting.

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