China regulator asked banks to respond to bearish Goldman report

CHINA’S financial regulator asked banks to respond to a bearish research report on the sector by analysts at Goldman Sachs Group Inc., underscoring heightened sensitivity in Beijing toward negative market commentary as the economy slows.

The National Administration of Financial Regulation (NAFR) communicated with several of the largest Chinese banks after Goldman analysts cut ratings on some shares and lowered price targets on others, people familiar with the matter said, asking not to be named discussing private information. The regulator told banks to respond appropriately, without giving specific guidance, the people said. The NAFR didn’t respond to a Bloomberg request for comment. Neither did representatives of Industrial & Commercial Bank of China Ltd. and Agricultural

Bank of China Ltd., both of which were downgraded by Goldman to sell.

China Merchants Bank Co. addressed the Goldman report in a clarification statement dated Friday, saying it had “misled some investors” and was “illogical.” The bank’s rebuke followed a similar rebuttal in the state-run Securities Times newspaper last week. One of China’s largest macro hedge funds has also criticized the report.

The unusually public backlash to Goldman’s research has put a spotlight on official efforts to counter negative investor sentiment toward markets and the economy. A prominent finance writer and two of his peers were suspended from a social media platform for spreading “negative and harmful information” about stocks in late June, a move that raised fresh questions about access to independent information in the world’s second-largest economy.

In its report published on July 4, Goldman analysts led by Shuo Yang, a former official at the China banking regulator, highlighted risks of lenders’ exposure to local government debt. Potential losses could weaken earnings growth, hurt capital accumulation and thus affect dividend payout levels, the analysts said.

This isn’t the first time Wall Street research has proved controversial

Bloomberg News in China. The last high-profile saga involved an “uninvestable” call on Chinese Internet firms by JPMorgan Chase & Co. last year, which eventually cost the brokerage a senior underwriter role in a stock listing. The incident underscored the tricky path global banks have to navigate as they ramped up their businesses in China, while still giving clients access to candid research on the country’s turbulent markets. Bloomberg News