| Sorting out China's stock market
2003-09-28
China Daily
The unprecedented sluggishness of the stock market has dealt a serious blow
to investors' confidence.
The market's leverage on the economy is
becoming marginal, as the benchmark Shanghai Composite Index has shed more than
a third from its 2001 peak and more disappointed investors are opting
out.
Only 1.6 per cent of domestic companies' funds came from share
issuances in the first half of this year, compared to a 12.6 per cent in the
bonanza year of 2000, according to central bank statistics.
Even the top
regulator has expressed concern about the situation.
Shang Fulin,
chairman of the China Securities Regulatory Commission (CSRC), recently urged
the tapping of the market's potential to restore investors'
confidence.
However, experts view this issue from different
perspectives.
"Many seem to agree that the stock market lost its appeal
because of continuous price falls," said Xie Geng, director of CSRC's Department
of Market Supervision.
"But a deeper reason is that this immature market
involves so many uncertainties that even a reasonable investment decision could
turn out to make a loss."
Xie made the comments at a forum in Shanghai
earlier this month while discussing the current stagnation of the stock
market.
He listed public firms' poor credit and a lack of protection for
investors as two major problems which often drag the market down.
But the
old ideology of cashing in on price-rigging and government interference no
longer works as the market is growing, which is another reason making many
investors glum, Xie noted.
Many experts attending the forum agreed that the
depressing picture at present, rather than a natural low in market fluctuation,
is the result of some systematic deficiencies in the fledgling
market.
Even policy makers are yet to fully understand the stock market's
role in fund raising, corporate governance and the redistribution of economic
resources, which would make more room for the healthy development of the market,
some say.
The government often uses mandatory orders to tackle risks and
other problems in the market, which has, in many cases, led to sharp ups and
downs. As a result, the function of the market itself to control risks and
adjust indices is long suppressed.
Ba Shusong, a researcher with the
State Council's Development Research Centre, said the stock market is actually
under the reins of a string of government departments other than the
CSRC.
He said these departments should co-ordinate to guarantee the
smooth operation of the market and prevent discord through regulatory
measures.
But Han Zhiguo, a renowned economist, warned that many listed
companies as well as investors tend to take cues from the government instead of
the market, because the administration's influence is so powerful.
The
lack of independence and rational investment decisions will hinder the maturity
of the market, he said.
Gu Mingde, a researcher with the Shanghai Branch
of the People's Bank of China, urged active steps to solve problems left from
the past, such as the issuance of non-tradable State shares.
When issuing
initial public offerings, many State companies used to retain a majority share
while selling the rest at a premium. Thus, they collected a lot of capital from
the market without losing control of the enterprises.
The problem will
not disappear automatically unless an appropriate State share compensation
scheme can be reached, said Gu.
Moreover, the longer the problem drags
on, the more difficult it will become to put the stock market onto a truly sound
path of development.
Some experts also call for harsh punishment for
those who commit fraud or manipulation, which will be key to restoring the
credibility of the market and investors' confidence.
Still, many experts
are buoyant about the future of the stock market.
The national economy is
on the track of sustained growth and the stock market has cut its teeth over the
past decade, which will support the market to run in a positive direction, said
Chen Dongqi, deputy director of the Research Institute of Macro Economics under
the State Development and Reform Commission.
The revenue of public
companies in general is improving gradually, he added.
"It will not
take long for the market to get out of the nadir," he said.  |
