Arrow-right Camera
The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

China trying to cool off hot stock market

Joe Mcdonald Associated Press

BEIJING – China’s leaders are trying to tap the brakes on a stock market boom that could run out of control and disrupt economic reform plans.

The Communist Party newspaper People’s Daily sounded a cautionary note this week, warning that stock trading is “high-risk.” It said the public should “invest rationally.”

China’s main stock index has more than doubled since November, making its market the world’s best performer.

The boom has been driven by easy credit, government encouragement for newcomers to invest and hopes the world’s second-largest economy would rebound from a deepening slump. That outlook has been clouded by weaker-than-expected economic growth and trade – yet markets kept rising.

Now, Beijing is trying to nudge investors toward being more realistic without sending prices tumbling.

“The danger of the bubble bursting is huge,” said market analyst Zhang Yang of Guojin Securities. “The government wants to cool the market.”

Brokerages were ordered in late April to rein in lending to investors to buy stocks. That reflected concern small investors were taking dangerous risks and a fall in prices could lead to political tensions or losses for the state-owned securities industry.

Beijing keeps its financial system sealed off from global capital flows and few foreigners are allowed to invest in them. But changes in Chinese markets can affect sentiment abroad. April’s announcement about margin lending triggered selling on Western exchanges.

On Tuesday, the benchmark Shanghai Composite Index declined 4 percent in what financial newspapers said might be a response to official efforts to cool investor emotions. It lost another 1.6 percent on Wednesday and 2.8 percent on Thursday but still was up 34 percent over the past three months.