China stocks dive 4.3%, as biggest IPO nears (2)

14:59, June 29, 2010      

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U.S.-style property boom and bust, which the world watched wearily from 2003-2009, is now Lesson No 1 for the boys steering China's economy. Now, though housing sells have withered resulting from Beijing's more strict credit policy and hiked mortgage rates for second and more homes, housing price has not gone down yet. The conventional wisdom is that the price would spiral down in July and August.

The global recovery is yet shrouded in mystery, which adds another uncertainty to China. During the just-concluded G-20 summit in Toronto, Canada, world leaders were careful not to draw too rosy a picture for this year and next, because no one is sure when the European sovereign debt woes will erupt again, or whether they are oblivious to any hidden economic perils that may prop up and strike us.

The equity investors worldwide are getting smeared by the suddenly dimmer prescription of U.S. economy given by the Federal Reserve in its last full-committee statement, and China's June 19 announcement to restart currency revaluation procedure, delayed by the sub-prime crisis and the Great Recession, has China's trade officials and dealers seriously worried about its export prospect -- still a key engine driving up China's growth.

In Beijing at the macro-policy drawing table, the central bankers are increasingly concerned with the month-on-month rise of inflations, which hiked to 3.1 percent in May exceeding government's annual target of 3 percent. Prominent economists, including Andy Xie and Qinghua University Professor Li Daokui, have recommended Beijing raise interest rates to control price rises.

At the same time, more economists have asked the government to wind down the extraordinarily proactive monetary policy, and take back big chunk of the mighty 9.59 trillion yuan of bank handouts last year. China's central bank planned 7.5 trillion yuan of new loans for 2010.

A slower growth of credit will be a drag on money supply and is expected to weigh heavily on the stock market. The Shanghai composite stock index has dived 27 percent this year, one of the worst performing markets in the world. It could get worse as the public cannot get any immediate relief from both inside and outside the country.

By People's Daily Online

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