Chinese stocks plunged 4.03 percent as panic grew among
investors on expectation of a slash on interest tax likely to be
passed tomorrow. The Shanghai Composite Index closed at 3,914.20,
down 164.39 points, the largest single-day slump since June 4.
Lawmakers yesterday debated a bill authorizing the State Council
to cut or suspend tax on interest accrued from bank deposits - a
move seen as helping rein in excessive liquidity and expected to be
passed on tomorrow's voting by the National People's Congress.
Analysts are divided on how much such a policy change will
affect the stock market and whether today's plunge is caused by the
news, but they agree it will draw money back to banks, and slow
investors from pumping their funds into an overheated stock
market.
Today's total turnover of the stocks enclosed by the two major
indices was 191.9 billion yuan, the second-smallest since May 29,
after June 14 with a 185.4 billion yuan turnover.
Like on most of the recent volatile trading days, the benchmark
Shanghai Composite Index ran through the morning session in
short-tailed fluctuations without forming a clear trend. After a
higher opening from 4,080.19, the index hit the highest 4113.28,
but failed to stay. In the afternoon, however, it met little
resistance on a way of descending. Finally, it closed a little
higher than today's lowest point of 3,912.81, again losing the
4,000-point mark regained just yesterday.
Of the A shares listed in Shanghai, merely 67 went up, 704
dropped and 68 finished unchanged. Shanghai Broadband Technology
was up 29.15 percent on top of the gainer's list. Beijing Tianhong
Baoye Real Estate and Jiangxi Hongdu Aviation Industry also grew
nearly 10 percent as the biggest gainers. Zhejiang Furun, on the
other hand, dropped 10.06 percent to lead the fall by the large
number of losers today.
Inner Mongolian Baotou Steel Union became the largest trader in
terms of trading volume, and rose 7.37 percent to 6.99 yuan. China
Yangtze Power, with the largest transaction value, was up 6.03
percent. But the dual couldn't lift the index as other large
traders were mostly dragging it down.
The Shenzhen Component Index, tracking the smaller Shenzhen
Stock Exchange, opened lower from 13,544.06 and closed at
12,882.18, down 701.53 points or 5.16 percent. It went through the
day within a range from 12,856.26 to 13,629.45.
Of its a shares, 500 fell, 79 ended flat and only 34 went up
today. Beijing Centergate Technology Holdings rose over 10 percent
to rank on top of the list for the second day while Jianmen
Sugarcane Chemical Factory Group dropped more than 10 percent on
the bottom. Sinopec Wuhan Phoenix, with the largest trading volume
in Shenzhen, grew 1.68 percent while Shenzhen Development Bank,
with the largest transaction value, slid as much as 6.64 percent,
pressing the index down.
Stocks in the mining, paper production and food industries
performed relatively better. Shanxi Xishan Coal and Electricity
Power pioneered the mining sector in with a 0.92 percent surge.
B shares finished down. Of the 109 listed B shares, 91 went down
and 10 ended flat. Anhui Gujing Distillery was again the biggest
gainer. Closed-end mutual funds mostly fell in the plunging
waves.
Besides a slash in the tax on interest, China is mulling a
series of measures to address the excessive liquidity problem. The
national legislature debated a draft bill authorizing the Ministry
of Finance (MOF) to sell 1.55 trillion yuan of special treasury
bonds to finance the proposed foreign exchange investment company.
Analysts believe the issuance of the bonds may reduce liquidity in
the market.
The funds raised will be used to buy US$200 billion of the
country's total of US$1.2 trillion foreign exchange reserves from
the central bank, and invested overseas. The bill, submitted by the
State Council to the Standing Committee of NPC, is expected to be
approved tomorrow.
New moves were made on the long-awaited financial futures. The
China Financial Futures Exchange (CFFEX) yesterday said the China
Securities Regulatory Commission has approved the trading rules, a
crucial step toward the launch of the mainland's first index
futures market.
CFFEX has said there is no specific target date for the launch,
but industry insiders have predicted it will be sometime this
year.
The approved trading rules cover trading practices, clearing
procedures, members' rights and obligations, risk control,
information management, hedging operations and the investigation of
and penalties for irregular trading.
It is widely believed that the approval of the trading rules has
cleared one of the final hurdles in the long preparation process
that has tested the patience of many prospective participants,
particularly institutional investors who would welcome an effective
hedging instrument to minimize risks in an increasingly volatile
stock market.
The central bank, on the other side, is concerned about
inflationary pressure and is ready to make use of a range of
monetary policy tools to curb prices rises, a senior official said
yesterday. "The central bank is firm on keeping inflation under
control," Yi Gang, assistant governor of the People's Bank of
China, told reporters at a fiscal forum in Beijing. "We have many
tools at hand," Yi added.
People have been expecting the central bank to raise interest
rates or take other tightening measures to rein in rising prices.
The central bank will make proper use of the tools to control
inflation and keep price levels and economic growth stable, Yi
said.
He added that increased asset prices would not be a factor in
taking tightening measures. "We are mainly concerned with
inflation, especially the consumer price index in China," he said.
In the long run, the central bank aims to keep real interest rates
positive, Yi said.
(China Daily June 28, 2007)