Plunging market won’t halt economy

Source:Global Times Published: 2015-8-26 0:18:01

The Shanghai Composite Index plunged further and eventually closed down 7.63 percent below the critical 3,000 level yesterday, marking the index's lowest level since December, 2014. It is futile to analyze the reasons behind the steep falls in the Chinese stock market these past two days. But we could draw some lessons from the skyrocketing rise since the beginning of this year till the recent fall.

The relationship between China's stock market and the economy is hard to articulate. Many people believe the stock market is a political one or is dominated by policies, but such beliefs were proved invalid as the sharp falls still occurred, despite the announcement of favorable policies.

When the economy was in an upward trend but there was a bear market, analysts concluded it was due to a lack of connection between the stock market and the economy. When the bear market encountered a downward economy, the latter would be considered as the root cause of the former. Such contradictory views made ordinary people confused.

The combination of a plunging stock market and a downward economy has brought huge impact to society and reinforced the impression that the Chinese economy is in a severe situation. The stock market is sliding, but the economy is not. The rule of the stock market is still hard to pin down, but the economy is under control. China's financial systems have not sounded the alarm, and the real economic structure retains a normal rhythm. The government did not rush to adopt extensive measures to intervene in the market as it did a month ago, which indicates that the government has confidence toward the stability of the economy.

The central bank announced a cut in the reserve ratio and interest rates after the stock market closed yesterday. This is a much moderate measure compared to measures adopted in early July. At this critical juncture, the government is sending the signal that what is happening currently is not "dangerous."

The Asian stock market followed the fall of the Chinese stock market on Monday, but surged yesterday. This shows that the outside came to realize that the Chinese stock market and the economy are not closely related.

The crash has made many people lose heart, but a severe financial or social impact may not come soon.

The economy won't come to a halt. The driving forces for medium- and high-speed growth still exist, and new impetus for the economic boom has been injected into the economy through reforms. After several rounds of the market fall, more professional analysts and institutions will be required in this field. When uncertainty still looms over the stock market, ordinary investors will be better off being spectators.

Posted in: Editorial

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