China’s Central Bank Official Says Bubble Worries Reduced By Its Stock Drop This Year

According to a spokesman from the People’s Bank of China, after the drop in China’s stock market the financial markets in China are safer.

The Shanghai composite ended the year on Friday 25 per cent lower for the entire 2018 at 2,493.9 which marks that worst year for the index since 2008. After the index hitting a high of 3,587 in January, it dropped down by as much as 31 per cent from that level in October primarily because of concerns over an economic slowdown, an acrimonious trade war with the U.S. and issues of financing of the corporate.

“The extent of this drop is rather large,” said Zhou Xuedong, spokesman, director general of the general executive office, People’s Bank of China. “But the market hasn’t seen major panic, (stock) dumping, or a large number of listed companies going bankrupt. This is a natural process of the market adjustment. The market participants have become relatively more mature.”

“After the stock market decline from 3,500 to 2,500, (with) valuations this low we are actually very safe,” Zhou said in Mandarin, according to a CNBC translation of his remarks to reporters in Beijing on Friday evening. “The fewer bubbles there are, the safer we are. When stocks are safe, the overall banking industry is safer.”

A number of announcement over the past several months have been made by the Chinese authorities in support of the stocks and the national economy. The market performance in the Chinese Mainland was less linked to economic growth compared to what the stock indexes in other countries might be because trading in the Mainland is dominated by sentiment-driven retail investors instead of institutions. But the Shanghai composite has just managed to recovered from a near-four-year low that it touched in October and it still sits at half of the level that it had hit in 2015 which is an indicator of the degree of uncertainty that hangs over China.

However, the Chinese government had engaged in a relatively subdued reaction to counter the latest stock market drop compared to the heavy-handed market intervention that the authorities there had engaged in during the summer market crash of 2015. To create support systems for companies which are struggling with a collateral system known as “share pledges”, the Chinese government has been encouraging the establishment of investment funds by private funds and local governments.

According to an online post, market-oriented principles should be implemented and administrative intervention in trading should be reduced, opined last week the members of the Chinese State Council Financial Stability and Development Commission.

The example of the People’s Bank of China’s success in enhancing financing for small- and medium-sized enterprises was given by Zou Lan, deputy director-general of the financial market department when Zhou and other representatives from the central bank were asked to further explain the statement.

On the overall, Zhou noted that the larger banks of China were in good health and emphasized his confidence in China’s financial stability.

“China is a country in transformation, transforming towards a market-oriented economy. There are many market systems it hasn’t fully” adopted yet, he said.

(Adapted from CNBC.com)

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