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Channeling Bank Deposits into Stock Market
Chinese policy-makers and economists have reached a consensus that the bulging deposits in its banks should be channeled to the stock market, if the country's current robust GDP growth is to be sustained, Wednesday's Chinadaily reported.
Liang Dingbang, former chairman of the Hong Kong Stock Exchange and now chief counselor of the China Securities Regulatory Commission, said the stock market is the only and also the most effective way to pipe the bank deposits into investment of promising enterprises.
He told the annual Asia-Pacific Finance Forum which was just concluded in Shanghai, that stock market would diminish and eliminate the wasteful ``investment'' ordered by government officials.
Under China's previous planning system, banks distribute all their loans to State-owned enterprises according to orders, in disregard of their economic performance and market potential.
Liang said if China's present annual 7-8 per cent annual GDP growth rate is to be sustained, the majority of the country's bank deposits will have to be funneled to the enterprises which deserve investment.
China's urban and rural residents now hoard a total of astronomical 7 trillion yuan (US$846 billion) in banks. Chinese people has a tradition to save the bulk of their earnings in the banks, and China is one of the countries with the highest deposit rate in the world.
Analysts said Liang's urge is being heard by government policy-makers, as the China Securities Regulatory Commission, the stock market watchdog, has quickened its pace of driving SOEs (state-owned enterprises) into the country's two stock markets, in Shanghai and Shenzhen.
A source from the Haitong Securities Company told chinadaily.com.cn reporter that from July 1, on average 1.7 firms a day was listed at the Shanghai and Shenzhen markets.
On the other hand, the government has also relaxed its control on fund entry into the stock market, as institutional funds, insurance premiums and pension funds are allowed to invest in the stock market.
Meanwhile, Professor Li Yining of the renowned Peking University, said the bankrupt enterprises should be liquidated and cleared out of the stock market, so as to make way for more efficient enterprises.
He suggested China's current laws and regulations on bankruptcies and acquisitions be revised and updated to the level of the developed countries. Li is the mastermind of China's first Securities Law, which came into force on July 1, 1999.
Both Liang and Li called for the establishment of the long-awaited ``second board,'' or trading booth for high-tech shares. There is wide expectation that China's Nasdaq will be opened late this year in Shenzhen.
China's Shanghai stock market composite index closed at 2029.43 points, another record closing high. Analysts predict more records will emerge in the coming days, thanks to individual investors' building confidence of the economy.
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