What caused the rise in the Chinese stock market?
- By Jiang Wei
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E-mail China.org.cn, December 11, 2014
On the other hand, can the fundamentals in the listed companies and the Chinese economy support this round of economic growth? According to the National Bureau of Statistics, in October, the added value and fixed asset investment of national industrial enterprises continued to drop. Besides, the PMI in November throughout China was 50.3, a record low in eight months. This means that in the coming period, China still faces great downward growth pressure. The central bank's asymmetrical interest cut at this time is mainly aimed at reducing the economic risks brought about by the decrease in economic growth. Whether it can stimulate the real economy is yet to be proven. Currently, the major reason for sluggish economic growth is that the new driver for economic growth has yet to be started, which has led to weak demand for investment and credit loans. Therefore, loosening market liquidity can activate investment to a certain extent, but it cannot resolve the root causes of economic stagnancy. The benefits of a series of economic system reforms need time to show and more reform measures still need to be carried out. As a result, the rise of the stock market is deviating from the basic economic environment.
In general, investors are hoping that in the first half of next year the central bank would increase market liquidity by further lowering interest rates, thus maintaining the bull market for a relatively long period of time. Obviously, this is too optimistic. The Political Bureau meeting of the CPC Central Committee held on Dec.5, 2014 decided to maintain the proactive fiscal policy and prudent monetary policy in the first half of 2015. This does not allow much space for the central bank to radically lowering interest rates further. In the meantime, more interest rate cuts in the latter half of the year will also mean great risks. When investment in real economy is sluggish, capital flowing into virtual economy after liquidity is loosened will increase the risk of creating a bubble. So, the hope of maintaining a bull market by continuously loosening monetary policy is most probably one-sided wishful thinking.
Besides, it is worth noting that US$2.25 billion in foreign capital has been withdrawn from China's private equity, the biggest withdrawal in three years. It indicates that the rebound in the Shanghai stock market was mainly driven by domestic investors. The contrast between domestic and foreign investors proves their different attitudes towards the market development. It is likely that the bull market will fluctuate in the future, and many individual investors are facing greater market risks.
Speculation should not be allowed to dominate China's stock market. It should be strengthened by rejuvenating the country's economic growth.
The writer is a doctoral student in international economics and trade at Nankai University.
The article was first published in Chinese and translated by Li Bin.
Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.
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