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BIZCHINA / Biz Media Digest

Finance: Overheating is a structural problem

(AP)
Updated: 2007-06-01 11:12

The overheating of the Chinese stock market is a structural problem that
will be resolved by developing more financial products and cracking down
on illegal activities, a Chinese securities regulatory official said
Thursday.

Related readings:
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Hu Bing, deputy director-general of the market supervision department at
the China Securities Regulatory Commission, said at a conference in New
York that authorities are seeking to roll out more products to broaden
investors' options, such as real estate investment trusts, or REITs, as
well as listed infrastructure funds.

Other eventual offerings will include derivatives products such as
stock-index futures and warrants. These products will be launched "when
conditions are ready," Hu said at a China Investment Forum sponsored by
Merrill Lynch and Institutional Investor. He said he couldn't provide a
clearer timeline for when those products would be ready.

Hu acknowledged a "liquidity surplus problem" that is contributing to the
overheating of the Chinese stock market and noted that hot-money inflows
coming in through illegal channels are exacerbating the problem. Tackling
the liquidity issue is a long-term project that "cannot be resolved just
by (raising) the interest rate," Hu said. "So the structural problem has
to be resolved using structural measures."

Earlier this week, the Chinese government tripled its stamp tax on stock
trades in an effort to rein in the equity market. The Shanghai Composite
Index more than doubled in 2006 and is still up around 50 percent so far
in 2007.

Hu said China's capital markets are still young and face a "golden
opportunity" to develop their depth and breadth. The majority of
individual investors rely on rumors or inside information to make their
decisions, leading to speculative gains in stocks, he said.

Hu said authorities are stepping up efforts to crack down on insider
trading, "but because this is a transitioning society in an emerging
market, it will take a long time."

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