China confident in managing financial panic: economist

By Li Qiaoyi Source:Global Times Published: 2018/7/2 15:08:40

A financial panic that's brewing in the Chinese economy won't evolve into a wider financial scare as exemplified by the Lehman Brothers bankruptcy, a famed Chinese economist said on Monday.

The authorities have been aware of the problem with the economy and the government's proven ability in terms of policy implementation has shown to be effective in pacifying market sentiment, Li Yang, director-general of the National Institution for Finance and Development (NIFD) with the Chinese Academy of Social Sciences, told the Global Times in an exclusive interview.

Deleveraging is the biggest problem facing China and it matters greatly how policy coordination and the pace of policy implementation can be well dealt with. The regulatory authorities need to respond to market fluctuations in a timely manner.

Recently, there has been a downward spiral in the mainland stock market, which is being compounded by a bond correction and yuan weakness.

Sagging mainland shares seem to be particularly nerve-shredding. By the market close on Monday, the benchmark Shanghai Composite Index had shed 22.62 percent from a year-to-date intraday high of 3,587.03 points on January 29, technically indicating a bear market.

Opinions, nevertheless, are divided about how panicked market sentiment really is.

The recent fluctuations in the stock, forex and bond markets are mainly owing to increased external uncertainties and the markets will be back to normal once investors' negative emotions are fully released, He Fei, a senior research fellow with the Bank of Communications, told the Global Times.

In a rare response on June 19 to conspicuous stock market losses, central bank governor Yi Gang also stated domestic market swings are mainly sentiment-induced amid falling stock markets elsewhere.

He of the Bank of Communications argues that the idea of financial panic itself is unclear. "Without a solid theoretical and empirical basis, the so-called financial panic is quite contentious. Chinese economic fundamentals are good and the economy is resilient, which doesn't make the case for a financial panic."

Additionally, the country is now doing a good job managing expectations and relevant authorities are capable of responding to market concerns in a timely fashion, disallowing the possibility of capital flight resulting from panicked sentiment, he noted.

Still, there are calls from market observers for the government to improve its expectation-anchoring efforts, thus pushing the market toward a more reasonable situation at the earliest possible time.

The government should advisably clarify its policy intentions, be flexible with its pace of fine-tuning as well as improve the efficiency of cross-ministerial efforts to rebalance the economy, NIFD's Li said.

Other than that, as He put it, the country should hold onto its existing policies, such as greater reform and opening-up measures and deleveraging efforts, to lay the groundwork for longer-term economic growth.



Posted in: ECONOMY

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