Chinesepod - Senior official plays down fear of bubble in stock market

BIZCHINA / News

Senior official plays down fear of bubble in stock market

(Xinhua)
Updated: 2007-03-21 11:15

A senior Chinese official has played down fears that bubbles are forming
in the country's stock market, insisting the market's development is
"healthy".

Shares were virtual capital and share prices fluctuated regularly, said
Zhou Zhengqing, a member of the Standing Committee of the National
People's Congress (NPC), the top legislature.

It was normal that bubbles develop on the capital market, and so long as
the bubble was not serious, it would not threaten the healthy development
of the market, said Zhou, who is also vice chairman of the Financial and
Economic Committee of the NPC.

On February 27, the benchmark Shanghai Composite Index, which covers both
A and B shares, plunged 8.84 percent to close at 2,771.79 points, the
biggest daily dive since February 18, 1997, when the index dropped 8.91
percent.

The steep dive has triggered speculation in the subsequent three weeks
that bubbles are developing on the stock market.

Zhou said the "bubble theory" was based on poor market judgement, and the
February 27 dive was just a correction under the market mechanism.

Zhao ascribed the excessive response to exaggeration of "bubbles on the
Chinese stock market" and rumors about bubbles, and investors being
psychologically weak against fluctuations.

Shares bounced back from the heaviest losses in 10 years on February 28,
Zhou said, as the benchmark Shanghai Composite Index surged 3.94 percent,
or 109 points to close at 2,881.07 points.

Zhou said the market was still in a period of adjustment, and he warned
investors not to blindly follow experts' analyses, which could be wrong.

After a four-year recession, China's mainland markets rallied at the
start of 2006, with the main index hitting new highs throughout the year.

The market growth was still recovering, said Zhou, a former chairman of
the China Securities Regulatory Commission (CSRC), the market watchdog.

The recovery in 2006 played an important role in supporting the national
economy, Zhou said.

He suggested closer supervision of the capital market and efforts to
educate new investors and raise their awareness of risks.

The government was aiming for a mature capital market, said Chinese
Premier Wen Jiabao on Friday at the conclusion of the annual session of
the National People's Congress.

"We will continue to improve the quality of the listed companies, put in
place an open, fair and transparent market system and strengthen
oversight of the capital market," Wen said.

(For more biz stories, please visit Industry Updates)

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