The lens through which mainstream media interprets China’s actions is sometimes too narrow, in the view of the Red Cat Journal. Let’s look at the reactions to two recent actions related to the Hong Kong stock market: 1) the announcement that domestic Chinese investors will be allowed to invest in Hong Kong listed shares through Tianjin (Aug. 22), and 2) the Hong Kong government’s announcement that it has taken a stake in Hong Kong Exchanges and Clearing, Ltd. (Sept. 6).

Regarding the first of these actions, the Wall Street Journal quoted an economist as saying “this is a historic move in China’s capital account opening “ and other media articles focused on the move as a step on the path to full Chinese RMB currency convertibility. Regarding the second announcement, the Wall Street Journal was especially interested in highlighting the fact that “the stock purchase drew criticism in some quarters for damaging the free-market reputation of Hong Kong”. In these cases, it appears that the media has simply slotted interpretation of these actions into existing story-lines about China. One of these story-lines is the necessity for China to open its capital account. The other story-line is the one which seems to constantly question whether China is trying to interfere with Hong Kong.

Media commentators, focusing on fitting in new actions into existing story-lines, become blinded to another possibility: China’s leaders may be more market savvy than investors realize. Why do we say this? We need to take into account two facts: 1) what was actually accomplished by these moves and 2) China is run by technocrats. The move to open up Hong Kong markets to domestic Chinese investors resulted in an 18% rise in Hong Kong shares over the following 10 days. The Hong Kong Exchange announcement resulted in HKEX shares rising 20% and is also likely to lead to a general rise in Hong Kong shares. So, here is our answer – China’s actions resulted in support for the Hong Kong stock market.

Now, let’s turn to the fact that China’s leadership is chock full of technocrats. Technocrats should be expected to have diligently studied the source of America’s economic power. A clear lesson would be that stable, and well-performing, capital markets are a source of economic strength. They would no doubt also have studied the actions of Alan Greenspan, who stepped in with market support any time market uncertainty increased. China may have learned that a little bit of good PR can do wonders for investor confidence and help to support capital markets.

With global markets shaky following the subprime meltdown in the US, and increasing risk aversion around the world, China must be keen to prove its financial stability and keep its markets healthy so that it can continue to raise the capital it needs to improve the competitiveness of its domestic economy. What could help with this? Good PR. China’s recent actions may simply be savvy market moves meant to re-assure investors, especially foreign investors, that continuing to put money into China’s key capital market, Hong Kong, is a winning proposition. Perhaps we should give China’s government a little more credit for understanding what underpins modern financial markets, or any financial market for that matter: confidence.