Focus on Asia: Market frenzy worries Chinese government

For a long time the Chinese government has been motivating its fellow countrymen to spend more money in order to stimulate domestic consumption. Presently, the Chinese savings quote makes up to 40 percent of the country's GDP. Money saving has become a second nature for those who witnessed the turmoil and economic uncertainties of the Chinese cultural revolution. The Chinese pension system is another reason for the unwillingness to spend. In times of the one-child-policy many especially urbanized Chinese can no longer lean back on the pension-wise advantages of big family structures.

Currently the word has definitely gone round in China that stock exchanges are places where dreams come true. After a long period of stagnation the Shanghai and Shenzen indices have been producing record figures for the last 18 months. And the recent warnings of market observers had no greater impact on the continuing euphoria of small investors. Chinese newspapers report how newcomers finance their investment through borrowed capital or use their properties as collateral. The high volumes in the market or rapid ownership transfers for shares clearly indicate that many small investors experience a genuine gold rush frenzy.

In fact, there are only a few possiblities for Chinese to invest their savings. The savings account is one of them and some might even keep the money in the cooky jar. Both ways do not really generate high revenues, so the promise of easy-made money is luring many to the stock exchange. Recently, newspapers have reported that Chinese authorities were worried about the ongoing reduction of saving funds. According to statistics of the Chinese central bank private savings were reduced by Yuan 167.4 bln in April. The same period of last year, however, saw an increase in savings by Yuan 60.6 bln. Authorities presume that a large portion of savings were used for stock exchange transactions.

It is the declared aim of the Chinese government to avoid a speculative bubble within in the scope of their sustainable growth policy, especially focusing on the real estate and stock market. Recent economic figures show that the government's call for moderation still remains unheard. The aimed growth rate of 8 percent is already largely exceeded. The 1st quarter 2007 saw a growth rate of 11.1 percent. While experts discuss a possible interest raise and other measures, the "man in the street" seems unimpressed as the interest paid on savings doesn't even cover the current inflation rate.

Source: Neue Z├╝rcher Zeitung


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