Chinese Stock Market Looking Up After Government Intervention

Original article: [Chinese]
Translated by Liu Peng, Lin Li

The Shanghai composite index has bounced up beyond 2,000 points in Friday's morning trading session after a series of good news came the night before on Sept 18 and revitalized the long-depressed Chinese stock market.

First, the state-television's nightly news program confirmed the long suspected stamp duty exemption for stock purchases was approved by the State Council and the tax would be scrapped from today. However, the 0.1% stamp duty remained in place for stock selling.

Second, the state news agency Xinhua reported that Central Huijin, an arm of the country's sovereign wealth fund, had kicked start an operation to purchase more shares of three major state-owned banks - Industrial and Commercial Bank of China, Bank of China and China Construction Bank - in the secondary stock market from Sept 18.

The report stated that the move was "in order to ensure the State's dominant shareholding position in crucial State-owned financial institutions".

Market observers believed the simulteneously released measures were aimed at propping up the plummetting Chinese stock market, as the Shanghai composite index had breahced the psychological bar of 2,000 points and dropped to around 1,800 points this week, shedding over 70% of its value compared with the all-time high of 6,124.04 points last year.

All-Out Strategies
In applauding the latest measures, Wu Xiaoqiu, director of Financial and Securities Institute of Renmin University of China, was optimistic that the Shanghai composite index would shoot up to at least 2,500 points following the announcement.

Wu said scrapping the stamp duty for stock purchases would cut the cost of trading, and it was a strong signal from the regulators to encourage market activities.

A senior executive of a securities firm said the combination of policies showed that the government had initiated an "all-out strategy" to save the market.

"Though Central Huijin is stepping in as an existing shareholder of the three banks to increase its stakes, its nature and background has clearly demonstrated that this is a government intervention in the stock market," he added.

Central Hujin is China's largest financial investment company at present. It was established on December 16, 2003, with a registered capital of 372.465 billion yuan. It is a wholly state-owned company and also an arm of the state sovereign wealth fund - China Investment Corporation.

Some held that Central Huijin was in fact a government institution and it was nicknamed State-Owned Financial Asset Supervision and Administration Commission (SFASAC), as oppose to the state-owned assets watchdog, SASAC, which held no jurisdiction over financial assets.

External Pressure
Hongyuan Securities Reserach Center chief Cheng Wenwei believed the latest move was a reaction to external pressure, similar to the interest rate and deposit reserve ratio cuts announced earlier this week, after news of US fourth largest financial institution Lehman Brothers had filed for bankruptcy broke.

"The present external environment is very pressing, central banks in the US and Europe have already pumped in some 180 billion dollars to stabalize the markets.

"When foreign countries have already joint hands to save the markets, Chinese regulators are facing increased pressure, and taking the cue to intervene has become the only option," said Cheng.

He believed the stock market would stop tumbling and shooting up by at least 20% t0 30% after the announcement.

"However, the decisive factor for the long term development of the stock market still depended on the overall macro economy performace. There will be expectations for further measures to be announced by the regulators," he said.

Since the afternoon of Sept 18, rumors of state intervention had started spreading and the stock market had reacted before any official announcement.

The Shanghai composite index had initially dropped to 1,800 points in the morning but in the afternoon, the index rose beyond 1,900 points.

The SASAC chief Li Rongrong in answering media query said the commission always stressed that state-owned enterprises (SOE) should play the role of a driving force and a stabalization engine in the market.

"We support centrally-administrated SOEs to increase stakes in their holding companies according to their own development needs, and we support listed SOEs to buy back their shares," Li said, adding he hoped the market would approve of such move.

Chinese securities Regulatory Commission media spokesman said it supported the latest measures, as they would have an impact in stabalizing the market and contributing to its healthy growth.