Stock plunge shows need for un­con­ven­tional moves to shore up A-share in­vestor con­fi­dence

Global Times - - Bizcomment - By Hu Wei­jia

Fol­low­ing the stock mar­ket rout in the US on Wed­nes­day, stocks listed on the Chi­nese main­land plunged Thurs­day, with the bench­mark Shang­hai Com­pos­ite In­dex break­ing be­low 2,600 points in af­ter­noon trad­ing to close at 2,583.46 points.

It’s time for China to take firmer mea­sures to sta­bi­lize the mar­ket and re­store in­vestor con­fi­dence.

In the US, strong eco­nomic growth has dis­tracted too many stock mar­ket in­vestors from the real dan­gers of a trade war, but the facts have proven the mar­ket was too op­ti­mistic. Un­der pres­sure from mul­ti­ple fac­tors, US shares plunged on Wed­nes­day, de­press­ing in­vestor con­fi­dence around the world.

On Thurs­day, about 1,000 main­land stocks fell by the daily limit of 10 per­cent. China must ur­gently and ap­pro­pri­ately han­dle the neg­a­tive im­pact of the US mar­ket crash on the Chi­nese econ­omy.

Quickly mo­bi­liz­ing all re­sources can shore up con­fi­dence in the mar­kets. First, the au­thor­i­ties can en­cour­age some A-share listed com­pa­nies to re­pur­chase their shares that are cur­rently trad­ing be­low net as­set value.

Sec­ond, the gov­ern­ment can speed up the ap­proval process to al­low pub­lic pen­sion funds to be in­vested in the stock mar­kets. In 2008, when China man­aged to min­i­mize the neg­a­tive im­pact of the global fi­nan­cial cri­sis, it cut the stamp duty for stock trans­ac­tions, which di­rectly re­sulted in a surge in Chi­nese shares. Now, China’s econ­omy is un­der even tougher pres­sure due to ex­ter­nal chal­lenges and threats, and Bei­jing may need to draw up cor­re­spond­ingly strong poli­cies to re­store in­vestor con­fi­dence and sta­bi­lize the econ­omy.

The trade dis­pute may have been the straw that breaks the camel’s back for the US stock mar­ket. China must pre­pare for a de­te­ri­o­rat­ing sit­u­a­tion in the US mar­kets and in­crease its abil­ity to re­sist ex­ter­nal risks. It won’t be easy in the era of global in­ter­de­pen­dence, and it may call for un­con­ven­tional meth­ods.

Amid es­ca­lat­ing trade fric­tion, China must strengthen its fire­wall against con­ta­gion from eco­nomic un­cer­tainty aris­ing in the US. The best choice is to in­ject stronger in­ter­nal im­pe­tus into de­vel­op­ing the econ­omy and car­ry­ing out struc­tural re­forms in the mar­ket. Also, it’s worth con­sid­er­ing a more proac­tive pol­icy in cap­i­tal ac­count man­age­ment to at­tract for­eign in­vestors to in­vest in Chi­nese shares.

Newspapers in English

Newspapers from China

© PressReader. All rights reserved.