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China's Central Bank Urges Confidence in Stock Market

A senior central banker urged investors on Wednesday to keep faith in China's turbulent share market, saying the government's policies were geared towards supporting a sound, rising trend.

Wu Xiaoling, a deputy governor of the People's Bank of China, said recent volatility in share prices would not damage the world's fourth-largest economy as long as the market did not turn "unhealthy".

"China's economic fundamentals are good, and the intention of the Chinese government's macro controls is very clear. That is, to ensure a healthy, rising market," Wu told reporters on the sidelines of a conference in the northern port city of Tianjin.

The Shanghai Composite Index, the country's main index, has swung wildly in the past week since Beijing, concerned that the market was boiling over, tripled the stamp tax on stock trades to 0.3% from 0.1%.

At one point on Tuesday, the index was down 20% from its record peak scaled on May 29. It recovered, however, to close 2.6% higher. On Wednesday, the gauge was down 0.85% after an hour of trading.

"Short-term ups and downs in the market are inevitable. You're always to going to get swings. How long those swings last does not matter. What really counts is the fundamental trend," Wu said.

The index is still up 40% since the start of 2007. Last year it soared 130%.

Investors reacted angrily to the tax increase because the government had denied a few days earlier that it planned such a move.

Officials had been wrong to issue a denial because the final decision was in the hands of senior policy makers and had not been taken, she said.

But Wu denied that the government had misled investors or had lost credibility over the episode. "I hope all the investors will maintain their confidence in China's economic development. However, everyone should be sufficiently prepared for potential market risks," Wu said.

"All the macro controls the government has been taking are aimed at maintaining the healthy development of the market, and then the market will benefit in the long term," she added.

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