Decisive and coherent policy measures to revitalize the equity market are needed to materialize the 4 trillion yuan (US$586 billion) stimulus package and also shore up China's economy, ten top economists said in a joint plea to the central government.

The hefty fall of the Chinese stock market, often seen as the barometer of the country's economic and social conditions, may lead to systematical risks in the banking and fiscal systems as well as put listed companies into a "vicious spiral", they said. Revitalization of the stock market will spur the country's domestic consumption and investment, they claimed.

"We noticed the absence of effective policies to stabilize the volatile financial market in the stimulus package and hence seek more moves for this sector," said Wu Shiqiu, a professor from Renmin University of China, who is also among the ten economists.

Authorities have to activate the market within the fourth quarter itself before the companies release their annual financials, otherwise the government may have to pay a higher price to prop up the market and shore up investor confidence, they said.

The economists also suggested plans to deal with the sizable overhang of non-tradable shares. They are of the view that big shareholders, who possess 5 percent or higher stake of non-tradable stocks to set a minimum price, below which share sales should not be permitted.

But some industry insiders said that the proposal, which needs prompt system innovation on the equity market, does not appear feasible now, as the economic fundamentals are still not strong enough.

"The valuation of China's stock market has turned reasonable when the index slips under the level of 2000 points. Therefore a recovery can only come when the fundamentals ameliorate rather than via any direct stimulus policies to the market, " said Zhong Hua, an analyst at Changjiang Securities.

He explained that authorities' move might help propel short-term index advancement, but the turnaround may not come from unitary policies when the real economy is deteriorating.

"Nobody knows how much capital injection into the immature stock market will trigger the recovery. Policies like raising personal income threshold and issuing consumption coupons to the lower-income and retirees sound more feasible to stimulate domestic consumption," said Chen Xian, an economist from Shanghai Jiao Tong University.

The benchmark Shanghai Composite Index rose 1.25 percent to close at 1894.62 points yesterday, led by rally in bank and property stocks.

(China Daily December 2, 2008)