Mainland's rapid rebound was driven by liquidity, academic says
Despite its relatively recent emergence on the world economic stage, the mainland can still draw on plenty of experience when dealing with local, regional and international economic and financial issues, says Professor Jie Gan, associate professor at the Hong Kong University of Science and Technology's department of finance.
'China doesn't have direct experience of dealing with a global crisis like this in a free market, but taking the right measures during a crisis is all about government action, and the Chinese government had been planning its economy for 30 years before it opened up and started its economic reforms,' Gan says. 'It also gained a lot of experience from the Asian financial crisis of 1997.'
On its side are also the vast economic resources it has compared with many other countries, so it has many more measures it can take to manage the economy out of the crisis, she explains.
However, the rapid rebound China managed was driven by liquidity, she says, which brought challenges. 'It fostered bubbles in the stock and housing markets, and these things became a political and social issue, which forced the government to mop up some of the [excess] liquidity.'
In general, she says, when people think things are on the up, they are going to put money into the market and it will get overheated. 'You can divide Chinese investors into two main types. One is individual investors, the others are larger players, more institutional investors.'
She explains that small investors gained a lot from the rebound, especially from 'hot stocks', some of which achieved 150 per cent growth by June last year.
'We shouldn't forget though that the index had reached 6,000 points only two years earlier, so many were only just breaking even - but this kind of speed of run-up certainly instilled a lot of hope in the market.'
