<TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published August 26, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>China stock sell-off overdone, says govt economist
As economy's recovery is solid, market slide will be short-lived, he says
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(BEIJING) Chinese investors have over-reacted to talk of monetary policy fine-tuning, and the recent sell-off in the stock market will be short-lived, a senior government economist said yesterday.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Giving himself a leg up: Investors trading online at a private securities firm in Shanghai.. Talk of monetary policy fine-tuning has spooked investors, with the market falling another 2.6% yesterday </TD></TR></TBODY></TABLE>Lu Zhongyuan, vice-head of the Development Research Centre, told a financial forum that he expected share prices to recover gradually because the recovery in China's economy was solid.
'Stock market confidence has been affected by the over-reaction to recent comments of 'dynamic fine-tuning' by the central bank,' said Mr Lu, whose think-tank reports to the State Council, China's cabinet. Despite Mr Lu's optimistic comments, the benchmark Shanghai index fell 2.6 per cent yesterday, leaving it more than 16 per cent below its 2009 peak but still up 60 per cent since the start of the year.
The People's Bank of China has repeatedly reaffirmed its commitment to the 'appropriately loose' monetary policy stance it adopted late last year to cushion the economy from a plunge in external demand triggered by the global financial crisis.
But investors have been unsettled by a rise in money market yields engineered by the central bank in what it describes as a tweaking of its operational methods, not a policy shift.
'As China's economy is steadily recovering, this round of stock market adjustment will not be too deep,' Mr Lu said. Indeed, he said China might have to adjust its expansionary policies next year if the economy gets fully back on track.
Mr Lu said the recent swoon in Shanghai shares was also due to the market's excessively rapid rise earlier in the year. Many investors have taken profits as the market lost steam.
The steep losses have rattled global markets, underscoring investor worries that the equity rally may have run too far ahead of economic fundamentals and still-weak corporate earnings. Mr Lu's comments on the economy were more optimistic than the assessment made on Monday by Premier Wen Jiabao, who said the recovery was not yet firmly anchored and China faced new difficulties.
Mr Lu listed three key risks for the rest of the year: over-capacity exacerbated by new investment, insufficient bank lending to smaller firms and liquidity-driven inflation.
Despite the recent downturn in the stock market, China's economy is still well on the path to recovery, making it an attractive destination for foreign investors, said Guan Tao, a deputy director at the State Administration of Foreign Exchange (Safe).
Mr Guan said there had been no sign of sudden or large capital inflows yet, but Safe was braced for the possibility. 'With the Chinese economy getting better and improvements in the external environment, China will face further capital inflow pressures in the second half,' he said.
Fan Jianjun, another economist at the Development Research Centre, said he expected annual GDP growth to pick up to above 9 per cent this quarter from 7.9 per cent in the second quarter.
Chinese exports would start to grow from year-earlier levels by November, although they would still subtract from economic growth for all of 2009, Mr Fan added.
Exports were down 22 per cent in the first seven months of 2009 compared with a year earlier, but rose 5.2 per cent in July from June on a calendar-adjusted basis. -- Reuters
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>China stock sell-off overdone, says govt economist
As economy's recovery is solid, market slide will be short-lived, he says
<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right>
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</TD><TD>Feedback</TD></TR></TBODY></TABLE>(BEIJING) Chinese investors have over-reacted to talk of monetary policy fine-tuning, and the recent sell-off in the stock market will be short-lived, a senior government economist said yesterday.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Giving himself a leg up: Investors trading online at a private securities firm in Shanghai.. Talk of monetary policy fine-tuning has spooked investors, with the market falling another 2.6% yesterday </TD></TR></TBODY></TABLE>Lu Zhongyuan, vice-head of the Development Research Centre, told a financial forum that he expected share prices to recover gradually because the recovery in China's economy was solid.'Stock market confidence has been affected by the over-reaction to recent comments of 'dynamic fine-tuning' by the central bank,' said Mr Lu, whose think-tank reports to the State Council, China's cabinet. Despite Mr Lu's optimistic comments, the benchmark Shanghai index fell 2.6 per cent yesterday, leaving it more than 16 per cent below its 2009 peak but still up 60 per cent since the start of the year.
The People's Bank of China has repeatedly reaffirmed its commitment to the 'appropriately loose' monetary policy stance it adopted late last year to cushion the economy from a plunge in external demand triggered by the global financial crisis.
But investors have been unsettled by a rise in money market yields engineered by the central bank in what it describes as a tweaking of its operational methods, not a policy shift.
'As China's economy is steadily recovering, this round of stock market adjustment will not be too deep,' Mr Lu said. Indeed, he said China might have to adjust its expansionary policies next year if the economy gets fully back on track.
Mr Lu said the recent swoon in Shanghai shares was also due to the market's excessively rapid rise earlier in the year. Many investors have taken profits as the market lost steam.
The steep losses have rattled global markets, underscoring investor worries that the equity rally may have run too far ahead of economic fundamentals and still-weak corporate earnings. Mr Lu's comments on the economy were more optimistic than the assessment made on Monday by Premier Wen Jiabao, who said the recovery was not yet firmly anchored and China faced new difficulties.
Mr Lu listed three key risks for the rest of the year: over-capacity exacerbated by new investment, insufficient bank lending to smaller firms and liquidity-driven inflation.
Despite the recent downturn in the stock market, China's economy is still well on the path to recovery, making it an attractive destination for foreign investors, said Guan Tao, a deputy director at the State Administration of Foreign Exchange (Safe).
Mr Guan said there had been no sign of sudden or large capital inflows yet, but Safe was braced for the possibility. 'With the Chinese economy getting better and improvements in the external environment, China will face further capital inflow pressures in the second half,' he said.
Fan Jianjun, another economist at the Development Research Centre, said he expected annual GDP growth to pick up to above 9 per cent this quarter from 7.9 per cent in the second quarter.
Chinese exports would start to grow from year-earlier levels by November, although they would still subtract from economic growth for all of 2009, Mr Fan added.
Exports were down 22 per cent in the first seven months of 2009 compared with a year earlier, but rose 5.2 per cent in July from June on a calendar-adjusted basis. -- Reuters
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