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People's Daily Online>>China Business

Heavy flows of private capital create bubbles

By Xiong Jian (People's Daily)

09:45, February 10, 2012

Edited and translated by People's Daily Online

Unregulated exchanges that mushroomed across the country have seriously disrupted China’s economic order, and heavy flows of private capital into these exchanges has led to serious asset bubbles, said Hong Hao, a research fellow at the Institute of Securities and Futures under Central University of Finance and Economics.

“The Chinese government has recently launched a crackdown on unregulated exchanges, in an attempt to bring private capital back to the right path and enhance their positive role in promoting the development of real economy,” Hong said.

Local governments’ support is the main reason why exchanges have sprung up in recent years.

“An exchange cannot only attract large amounts of capital, but also benefit local warehousing and logistics industries if it develops well. Many local governments hold a stake in exchanges probably through state-owned investment companies,” said Hu Yuyue, director of the Institute of Securities and Futures under Beijing Technology and Business University.

Leading private capital back to right path, preventing excess market liquidity

Hong said that the Chinese government should introduce necessary policies and establish a funding pool to lead private capital back to the right path, and to prevent excess liquidity in the market.

Experts noted that capital markets mainly made up exchanges play a major role in resource allocation. Multi-level financial channels should be established based on capital markets, in order to boost the development of domestic companies.


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