Chinese Stock Fall Will Not Persist: Senior Adviser

The slide in China's stock market will not continue, as the country's economy remains resilient and the impact of global credit problems is limited, a senior government adviser said in an article published on Wednesday.

Stock investors watch stock movement at a stock exchange in Chengdu, China.
AP
Stock investors watch stock movement at a stock exchange in Chengdu, China.

"China's stock market looks so rainy now, with share prices plunging recently in contrast to the sunny sky of the country's economic fundamentals, which are generally trending stronger," said Li Deshui, a member of the Chinese People's Political Consultative Conference (CPPCC), a top government advisory body.

"This phenomenon apparently runs contrary to the principle that the stock market should be the barometer of the economy and thus will not be sustained," Li, who is also an adviser to the National Bureau of Statistics, said in the article published in the official China Securities Journal.

China's benchmark Shanghai Composite Index has tumbled 19 percent so far this month as the central bank tightens monetary policy more aggressively than expected, and as rising raw material prices cut corporate profit margins.

The index ended at a 15-month low of 2,794.751 points on Tuesday, down 54 percent from last October's peak. About $2.2 trillion of value on the Shanghai and Shenzhen exchanges has been lost since October, making the bear market by far the most costly since China's modern stock market was launched in 1990.

Li, whose position gives him influence among policy makers but does not give him real authority over financial matters, said the U.S. subprime crisis should not have a major impact on China's stock market as few Chinese companies had invested in the U.S. credit market and no foreign firms were listed in China.

The recent financial turmoil in neighboring Vietnam was also an "isolated case" and would not be able to assault such a large economy like China, he said.

Vietnam's ruling Communist Party is facing one of its biggest challenges with yearly inflation in double digits for seven consecutive months, hitting 25.2 percent in May, while the country's stock market has dropped 60 percent this year.

"It is very likely for China's economy to maintain stable and rapid growth, not only this year but also in a certain period to come," Li said in the article. "To sum up, China's stock market will not fail to live up to the expectations of investors."