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China economy

Weak stock market an ‘embarrassment’ for China, says Beijing adviser

  • Stock market has ‘diverged completely’ from country’s economic fundamentals, says former vice-chairman of political advisory body
  • Blames lack of confidence among Chinese investors for stock market weakness
PUBLISHED : Wednesday, 14 November, 2018, 7:40am
UPDATED : Wednesday, 14 November, 2018, 7:40am

China’s stock market, whose indices are among Asia’s biggest losers for the past four quarters, is an embarrassment to the country, the chairman of the country’s biggest commerce guild and a senior government adviser said on Tuesday.

“China’s stock market has diverged completely from the country’s economic fundamentals,” said Huang Mengfu, chairman of the All-China Federation of Industry and Commerce and a former vice-chairman of the China People’s Political Consultative Conference (CPPCC), during Caijing’s annual conference in Beijing. “It is so embarrassing that the total [value of the] stock market of China” is equivalent to the market capitalisation of seven Apple Incs, he told an audience of bankers and business executives.

Top China adviser tries to boost battered confidence in economy after weak stocks, financial data

China’s Shanghai and Shenzhen exchanges are capitalised at a combined US$6.59 trillion, compared with Apple’s market value of US$921 billion.

Even though China’s economy is now the second-largest in the world and still boasts one of the fastest growth rates among major economies, its stock market has lost about 50 per cent of its value since a peak in the summer of 2015, with half that fall occurring in 2018. In the process, investors have lost trillions of yuan.

The Chinese stock market’s weakness has also been used by US President Donald Trump as an indication of the Chinese economy’s vulnerability, and to say that it will not be able to withstand a protracted trade war with the United States.

Huang blamed the stock market’s weakness on lack of confidence among Chinese investors. “ … if the US stock market falls, China follows. But when the US stock market moves up, the China market still holds steady, or just inches up slightly,” he said.

Huang said the benchmark Shanghai Composite Index must recover to a level of 4,000 to 5,000 so that the stock market can function properly. The Shanghai composite closed at 2,654.88 on Tuesday.

His comments come at a time when the Chinese leadership is trying to bolster the country’s stock prices. Both business and consumer confidence have been dampened by a three-and-half-year stock downturn.

Last month, Vice-Premier Liu He came out in support of the China’s economy and stock market, and said the country’s stock prices, at historically low levels, represented excellent investment opportunities given the strong fundamentals of the Chinese economy.

Chinese government agencies, and even the country’s legislature, have scrambled to try to rescue the market. Last week, Beijing amended its corporate laws to make it easier for listed companies to buy back shares, while the China Securities Regulatory Commission issued a new guideline encouraging listed companies to borrow money to fund share buy-backs.