Govt bailout key to restoring market confidence

Source:Global Times Published: 2015-7-9 0:38:02

Wednesday saw China's stock market plunge again. The Shanghai Composite Index slumped by 5.9 percent to nearly 3,500 points. More than 1,000 shares dropped by the daily limit of 10 percent, and half of the shares in China's two benchmark stock exchanges were suspended. The performance of the Chinese stock market has captured the attention of many international media, with CNN headlining one of its articles "Forget Greece. China is the real problem."

Amid investors' moans and whines, the government has taken action to rescue the market. China's central bank announced Wednesday it will provide sufficient liquidity to the China Securities Finance Corporation (CSFC), the State-owned margin finance company, in a bid to support stability in the stock market. The State-owned Assets Supervision and Administration Commission has forbidden State-owned enterprises from selling shares of their listed subsidiaries. The China Securities Regulatory Commission also appealed to senior executives of listed companies to buy more shares in their own companies.

It is crucial that the CSFC acquires liquidity support from the central bank. Other expedient measures can also help calm investors down. After this new round of policies, the down momentum can be further controlled, and more good news will come along. But panic is still prevalent among the majority of investors. Therefore, more time is still needed to restore their confidence and see the big picture. This is probably the first time in China's stock market history that the government is engaged in such a large-scale rescue of its stock market. No one can specify how a particular rescue policy will work out in the crisis. Debate is still ongoing.

The debate is focused on specific actions taken by the authorities rather than the determination of the government to rescue the stock market. The debate might carry on until the stock market returns to normal. But what really matters now is that the government must move immediately.

Now, it is pointless to discuss whether the stock market should be rescued or not. The stock market crisis does not reflect the fundamentals of the Chinese economy. All we need is confidence to overcome the hurdle, and only a cheerleading government can give us that. Fully determined, the government is financially strong enough to turn the tide. It should only care about how to ensure its specific policies can strike home, alleviating investors' concerns.

China has an unparalleled ability to mobilize resources to accomplish large undertakings. The government is trying to transfuse confidence into the stock market, although it requires a lot of time, effort and skill. But we are moving with purpose.



Posted in: Observer

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