Home' Trinidad and Tobago Guardian : January 10th 2015 Contents JANUARY 10 • 2016 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG13
China's economy, as well as Asia's, are unlikely to
slow down sharply this year despite Chinese stock
turmoil that has rocked global financial markets, the
Asian Development Bank president said Friday.
Sharp selloffs in the Chinese stock markets this
week have renewed fears about the fate of the world's
second-largest economy and the knock-on effects
across the globe.
"I don't have a very pessimistic view about China,"
ADB president Takehiko Nakao told reporters in
Manila, adding the bank was maintaining its 6.7-per
cent economic growth forecast this year for China.
This would only be slightly lower than its 6.9-per
cent growth projection for the country in 2015.
Developing Asia as a whole, which has been highly
dependent on China, should grow 6.0 per cent, or
up from 5.8 per cent forecast for 2015, Nakao said.
Nakao said China was successfully undertaking
important reforms, such as making its economy less
reliant on investment and more on domestic consumer
He also cited ongoing reform of state-owned enter-
prises, expansion of the social security system and
reduction of disparities between Chinese cities and
"Also there is room for stimulus... because its fiscal
position is strong and inflation is subdued," he said.
Nakao said that, despite the latest turmoil on the
Shanghai bourse, the index was still about 1,000
points above its end-2013 level.
Nakao also said he did not believe the yuan cur-
rency's depreciation was a deliberate attempt by the
Chinese authorities to weaken it to boost exports.
"This depreciation is not because of artificial inter-
vention to lower the renminbi," he said, using another
term for the yuan.
"It is in a sense the other way. They don't intervene,
that's why there is a marked depreciation."
Nakao said a rapid depreciation could trigger a
reciprocal move by other countries.
"Already some countries have depreciations in cur-
rencies. But I don't think this is a currency war," he
"Love is like war: easy to begin but very
hard to stop," the American writer HL
Mencken observed. Less poetically, he might
have added market meddling to the mix.
This is the week that China had planned
to dismantle some of the rescue measures
put in place when the stock market crashed
last summer. That prospect helped to spook
investors: stocks fell by seven per cent on
January 4, the first trading day of 2016,
their worst-ever start to a new year. Chinese
regulators once again are wading in, however
haplessly, on January 7 share drop by another
7.0 per cent.
"So what?," you might ask. The unruliness
of China's stock market is not news and,
for all the headlines generated by its tumult,
it is a poor indicator of the economy's health.
Growth already was slowing early last year
when share prices raced to vertiginous
heights. Parts of the economy---the real-
estate market and consumer spending---
actually have improved since stocks cratered
by more than 40 per cent during the sum-
mer, although manufacturing remains weak.
Companies raise little financing from the
market and savers store little wealth in it.
Even so, the stock market is the clearest
expression of the fragile state of financial
reform in China. The government has
declared that it will relax its grip on the
economy and give more sway to market
Having done so, first in agriculture and
then in manufacturing, is an important rea-
son for the remarkable growth of the past
35 years. In finance, though, the desire for
the more efficient allocation of capital clashes
with the Communist Party's reflexive instinct
It seems that a falling stock market sends
too transparent a signal of negative sentiment
for officials to bear. The fingerprints of the
"national team," a motley crew of state-
owned financial institutions, were all over
the buy orders that swooped in when the
market tumbled. This week the regulator
was supposed to end a ban on share sales
by big investors. Now it has drafted per-
manent restrictions, in effect telling investors
that they are welcome to buy shares, but
not to sell.
It would be hard to conceive of a better
plan for scaring away money. The poor
design of circuit-breakers, trading halts
ostensibly designed to calm the market, has
added fuel to the fire.
The tension between reform and control
also is evident in the currency market. The
central bank has started to back away from
obsessive management of the yuan's
exchange rate. The more leeway that it cre-
ates for trading the currency, though, the
bigger its headache. The central bank judges
that the yuan is more or less at fair value.
The market disagrees and has pushed it
Selling dollars to prop up the yuan so as
to make for an orderly depreciation, China
has run down its foreign-exchange reserves
by some US$300 billion during the past
half-year. The government still has a plump
cushion, but its reserves are not limitless.
Accepting more volatility, even if that means
a sharper depreciation now, would be bet-
ter.The government's hunger for control is
clouding the broad economic picture. Bur-
dened by the mountain of debt that it has
accumulated during the past decade, China
needs to begin deleveraging. That in turn
means tolerating slower growth, at least for
Instead all indications are that the gov-
ernment will set its annual growth target
at 6.5 per cent for the next five years in a
plan to be unveiled in March. That is above
what most analysts think it can credibly
achieve without piling on even more debt
and bringing closer a real economic crisis.
China has reached a point in its devel-
opment at which it needs to move faster in
ceding power to the market power over
shares, its currency and the growth rate.
Unless the government gives up more control
now, it risks someday losing it altogether.
@2016 The Economist Newspaper Ltd. Distrib-
uted by the New York Times Syndicate
The latest trigger was currency jitters, but
Thursday's plunge in Chinese stocks was just
one in a series of aftershocks from last year's
boom and bust that could shake markets for
months to come.
Investor anxiety over economic weakness
and a possible glut of unwanted shares flooding
the market have complicated Beijing's efforts
to withdraw emergency controls imposed after
Chinese stock prices collapsed in June.
The turmoil in China triggered a sell-off in
Asian and Western stocks. Beijing keeps its
markets sealed off from global capital flows,
but due to the vast size of China's economy,
foreign investors watch them closely and react
"The market still is trying to find a bottom,
and that takes time," said Chen Yong, a strate-
gist at Lianxun Securities. "The key is to be
able to resume normal daily trading, and during
that time volatility is inevitable."
The upheaval disrupted the ruling Com-
munist Party's plans to use the stock markets
as a tool to make China's state-dominated
economy more competitive and productive.
Economic growth fell to a six-year low of
6.9 per cent in the July-September quarter
and is forecast by the International Monetary
Fund to decline further to 6.3 per cent this
year. Monday's stock price plunged was trig-
gered by surveys that showed manufacturing
in December was weaker than expected.
The latest bout of selling was fueled by con-
cern Beijing is letting China's yuan weaken
too fast against the dollar.
The yuan, also known as the renminbi, has
drifted down by 6.0 per cent against the US
currency since the central bank adopted a
mechanism in August it said would make the
state-set exchange rate more market-orient-
ed.The yuan's link to the dollar meant it soared
as the US currency climbed over the past year,
making it overvalued by 10 to 15 per cent
against those of other developing countries.
But the prospect Beijing would close such a
large gap fueled fears it might lead to an outflow
of capital, weakening China's economy and
reducing the supply of money to support share
Thursday's exchange rate of 6.5646 yuan
to the dollar was the lowest since March 2011.
"The government hopes to see the yuan
depreciate to stimulate exports and the econ-
omy, but the speed of depreciation went too
fast," said analyst Zhang Gang of Central China
The White House said the US was closely
monitoring China's currency.
White House spokesman Josh Earnest said
the US approach to the uncertainty was to
continue pressing China to speed up the pace
of economic reforms he said would benefit
China long-term and help the global econ-
Investors also were skittish about the
impending end Thursday of a six-month ban
on share sales by any stockholder who owns
more than 5.0 per cent of a company, according
After Thursday's market plunge, the secu-
rities agency tightened that restriction by
saying they can unload only the equivalent of
one per cent of a company's shares over the
next three months.
...World could face months of market aftershocks
A Chinese investor takes a smartphone photo of
electronic displays showing stock prices in a
brokerage house in Beijing, Friday, January 8, 2016.
Chinese stocks were volatile Friday and other Asian
markets rebounded after a plunge in Chinese prices
rattled global markets. (AP)
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