8 September, AtoZForex.com, Lagos – Chinese officials are convinced that the market frenzy experienced in the first half of the year is coming to an end, after a bubble formed in China’s stock market. Zhou Xiaochuan, governor of China’s central bank made this clear in the G20 meeting held over the weekend that the market has almost completed its correction.
The country’s authorities had to launch a bout of policy measures aimed at stabilizing the markets after sharp drops in stock prices. The fall can be seen as a result of high leveraged buying earlier in the year. The large drop in markets sparked global fidgeting as domestic and international investors panicked, forcing the government to take steps like the devaluation of the Yuan.
Also, there are restrictions on selling stocks and the deployment of the “national team” of state-owned investment funds and institutions to buy up shares”. On aggregate, Chinese stock markets are down nearly 40 per cent from their June peak.
Three major corrections since June
In remarks about the Chinese market correction at the G20 in Turkey, the People’s Bank of China quoted Mr Zhou as saying: “At present, the exchange rate of the renminbi against the dollar is stabilizing, the correction in the stock market is already mostly over and the financial markets show hope for stabilizing.”
Mr Zhou acknowledged that “before June, the Chinese stock market bubble grew continuously”, but added that of the three major corrections since June, only the most recent in mid-August had a global impact. Chinese government action had prevented further slides and systemic risks, he added.
“Following the correction, levels of leverage are clearly lower and there has been no notable effect on the real economy,” he added.
Step towards market-determined Exchange
China garnered support from most finance ministers and central bankers in the G20 on Saturday. They agreed that China’s argument that changes to its state-managed currency peg last month were a step towards a more market-determined exchange rate.
Taro Aso, Japanese finance minister, seemed to be the only contrarian to the view. He pointed that told reporters that Mr Zhou had three times used the term “burst” referring to the stock market bubble. The Chinese transcript uses the more decorous term “correction”, and refers to a “bubble” only once. He also claimed that the Chinese presentation was not detailed enough.
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