Stocks fall 2.2% on tightening measures
Updated: 2007-09-07 16:57
The People's Bank of China said the move was aimed at "strengthening liquidity management in the banking system and checking excessive money supply and credit growth".
The central bank also issued 151 billion yuan directed bills to select commercial banks for the fifth time this year to drain capital from the market. The three-year bills carry an annual interest rate of 3.71 percent.
Statistics show that China's foreign exchange reserves reached US$1.33 trillion at the end of June, up 41.6 percent over the same period last year. A total of US$266.3 billion was added to the country's foreign exchange reserves in the first half of 2007, US$144 billion more than a year earlier.
Analysts believe the combined move indicates the central bank is becoming more and more resolute in combating excessive liquidity problems. The hike in the required reserve ratio and bill issuance are targeted at reducing money supply directly, after the central bank has raised the interest rates four times so far this year, which focuses more on the demand side.
In the future, it will continue implementing monetary utensils including adjustments on the interest rate and bank reserve ratio, and issuance of directed bills and the special treasury bonds, at any time necessary, economists predict.
The move echoes Premier Wen Jiabao's warning against the economy changing from "fast growing" to "overheating." The economy, on the whole, is in good shape, but is still plagued with unstable factors, imbalances and lack of sustainability, Wen said yesterday.
The problems include excessively rapid economic growth, acute structural tensions, inefficient pattern of growth, depletion of resources and environmental degradation, mounting pressure on prices and entrenched structural and institutional obstacles, he said.
Ever since the total capitalization of the stock market topped China's 2006 gross domestic product on August 9, the benchmark Shanghai Composite Index has climbed another 13 percent from 4,700 to 5,300 points. The total market value of all securities listed on the two exchanges exceeded 24 trillion yuan at the close of yesterday.
Such a speed makes China's stock market one of the fastest growing markets in the world's history, triggering a heated debate on whether the pace is too quick and if there is a big bubble in the market.
A report by the Shenzhen Stock Exchange revealed that its 487 listed companies had a smaller proportion of their profits coming from their major businesses, according to their half-year results. Instead, investment return and income from other minor businesses accounted for over 20 percent of the average total profit, representing these companies' unstable and unsustainable profitability.
Shang Fulin, chairman of the China Securities Regulatory Commission, said that the growth rate of Chinese stocks is not "too fast" and that the imminent task for the supervisors is to remedy defects in the market infrastructure. China's capital market is in a transitional development phase, and both the government and investors should analyze and deal with new problems through the process with positive attitudes, Shang said.
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