Old news set to leave China behind

Firstly, this appears to be a naked commercial grab, creating a monopoly for a government-owned business in a lucrative market. While this might deliver a healthy cash pile for the news agency concerned, alienating the Bloombergs and Reuters of this world seems like a hefty price to pay for what will be a relatively small revenue stream.

These news organisations already operate a limited service in China, enabling companies to access the global information flow that ensures they operate at the maximum level. However, this development is likely to be severely impeded if they are unable to have direct, unmediated access to their customer base. The opportunity for China to benefit from the expertise that these global media giants can deliver will therefore be limited.

However, the move is likely to be damaging to the Chinese economy on a more fundamental level. Foreign exchange, perhaps more so than any other market, depends on a fast flow of reliable information. Where this is not available, traders and their institutions are understandably likely to be wary about exposing themselves to the market.

For now, this does not bother the Chinese authorities, which have imposed strict foreign exchange controls that severely limit any trading in their currency. However, in the medium to long term these restrictions will be relaxed and the currency will be allowed to float more freely. When this happens, the Chinese government will want an orderly transition to a flexible exchange rate.

This is less likely to happen if the domestic market lacks the information that it needs to function efficiently. The time lapse between market-moving news being released within and outside the country will deliver opportunities to the likes of aggressive hedge funds to arbitrage those domestic Chinese players who are a few seconds behind the game.

Of course, we are still some way from the renminbi being freely traded, so there is plenty of time for the Chinese government to change its mind and let the news providers in. If it does not, there is a real danger that in trying to protect the tender shoots of its capital markets, it will inadvertently prevent them from growing to maturity.