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Senior official plays down fear of bubble in stock market

(Xinhua)
Updated: 2007-03-21 11:15

A senior Chinese official has played down fears that bubbles are forming in the country's stock market, insisting the market's development is "healthy".

Shares were virtual capital and share prices fluctuated regularly, said Zhou Zhengqing, a member of the Standing Committee of the National People's Congress (NPC), the top legislature.

It was normal that bubbles develop on the capital market, and so long as the bubble was not serious, it would not threaten the healthy development of the market, said Zhou, who is also vice chairman of the Financial and Economic Committee of the NPC.

On February 27, the benchmark Shanghai Composite Index, which covers both A and B shares, plunged 8.84 percent to close at 2,771.79 points, the biggest daily dive since February 18, 1997, when the index dropped 8.91 percent.

The steep dive has triggered speculation in the subsequent three weeks that bubbles are developing on the stock market.

Zhou said the "bubble theory" was based on poor market judgement, and the February 27 dive was just a correction under the market mechanism.

Zhao ascribed the excessive response to exaggeration of "bubbles on the Chinese stock market" and rumors about bubbles, and investors being psychologically weak against fluctuations.

Shares bounced back from the heaviest losses in 10 years on February 28, Zhou said, as the benchmark Shanghai Composite Index surged 3.94 percent, or 109 points to close at 2,881.07 points.

Zhou said the market was still in a period of adjustment, and he warned investors not to blindly follow experts' analyses, which could be wrong.

After a four-year recession, China's mainland markets rallied at the start of 2006, with the main index hitting new highs throughout the year.

The market growth was still recovering, said Zhou, a former chairman of the China Securities Regulatory Commission (CSRC), the market watchdog.

The recovery in 2006 played an important role in supporting the national economy, Zhou said.

He suggested closer supervision of the capital market and efforts to educate new investors and raise their awareness of risks.

The government was aiming for a mature capital market, said Chinese Premier Wen Jiabao on Friday at the conclusion of the annual session of the National People's Congress.

"We will continue to improve the quality of the listed companies, put in place an open, fair and transparent market system and strengthen oversight of the capital market," Wen said.