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Features - Editor, 25 August 2008

Investors Optimistic for Post-Olympic Economy Upswing



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Following the fortnight of the 2008 Beijing Olympics, during which time the Shanghai Stock Exchange’s benchmark composite index fell 7.7 percent, with the past week being particularly turbulent, investors are confident that China’s government will turn its attention to the economy and brighter times are ahead. Considering the fact that China spent around $42 billion on the Olympic Games, money which appears to have been readily available, it seems surprising that the market is performing so badly. With the Shanghai stock market having tumbled by 54 percent since the beginning of the year, there is some serious work to be done to turn the situation around and win investor confidence.

China’s securities market is based in two mainland cities, being Shenzhen and Shanghai. The Shenzhen Stock Exchange is host to mainly small to medium sized enterprises while many large-scale enterprises are listed with the Shanghai Stock Exchange. One of the primary differences between China’s market and other world markets is that virtually all the companies listed on China’s stock exchanges are government controlled. Taking this into account there are mixed feelings as to whether or not China can move over to a fully capitalist market, free of government control. It is generally agreed that in order to allocate its capital more efficiently, China needs to liberalize its markets, as well as to relax price ceilings and introduce market-driven pricing mechanisms.

China’s Security Regulatory Commission (CSRC) serves as a centralized securities supervisory system that has direct jurisdiction over futures markets and securities. Among other duties, the CSRC supervises fund management companies that invest in securities, sets the level of information disclosure and drafts exchange laws and regulations in an effort to prevent financial crises. With the market being as volatile as it has been recently, the CSRC has put a number of measures in place to create stability, which it feels has had a measure of success.

In an economic system where capitalist principles are starting to make slow but steady in-roads into what has traditionally been a closed economy, many of China’s citizens are pursuing the goal of getting rich by investing in the stock market, with some reportedly being willing to pawn their possessions in order to do so. Certainly, China’s economy and stock market in these post-Olympic months will be monitored with great interest and anticipation by investors.

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