? ?
Opinion / You Nuo
Market reaction awaited
By You Nuo (China Daily)
Updated: 2007-09-17 07:18
My original topic for this column will have to be delayed for another
time as I am compelled to focus on the Chinese central bank's
announcement on Friday of a second raise in interest rates in a month.
The People's Bank of China raised the benchmark one-year lending and
deposit rates by 0.27 percentage points. This means the one-year lending
rate has increased from 7.02 percent to 7.29 percent, and the deposit
rate from 3.6 percent to 3.87 percent.
In less than a year, the central bank has lifted interest rates five
times and also the amount banks must hold with the central bank, known as
the reserve requirement ratio, seven times.
The central government, without a doubt, is doing the right thing to
contain inflation, which stood at a bothersome 6.5 percent in August
year-on-year, the fastest growth in a decade.
It will be interesting to see this time what the domestic stock market's
reaction will be to the rates hike. Judging from what has been seen in
the past, the nation's investment passion was not cooled, and banks, with
their higher interest rates, hardly attracted more savings.
Especially now when the consumer price index (CPI) is high, what would be
the point of people putting their money into banks?
They will still prefer to seek higher returns from various investment
channels - and most likely from the stock market. But with the ample
funds that they can raise from investors, or from exports, how can the
publicly listed companies generate the expected returns - at a time when
the central government no longer welcomes massive investment projects?
To be sure, there will be some large projects, such as power stations and
other infrastructure developments. There will also be more expensive
mergers between State-owned large corporations - issuing more stocks and
raising more money.
But these things hardly generate direct sales unless the government price
caps on most utility supplies are removed, something that Beijing would
be reluctant to do for the sake of protecting low-income households and
social harmony.
Of course, Chinese companies can continue to export to their traditional
markets - North America, Western Europe, Japan and the rest of Asia. But
the trend is that these markets are becoming more and more saturated, if
not more restrictive.
In reality, there appears only three ways the Chinese can spend their
money meaningfully. One is to learn to build things with new technologies
and sell them at more competitive prices.
The second is to build more cities in the under-developed inland and
frontier areas, to admit more rural people, giving them an urban
lifestyle.
And the third is to learn to take advantage of the global opportunities.
With the gradual increase in the value of the renminbi against the US
dollar, it may be a good time for more Chinese companies to branch out
overseas, as many companies from other developing economies are also
doing.
But global opportunities should not only mean getting new natural
resources, but more importantly, passing to the local people the Chinese
expertise in turning out manufactured goods at relatively low prices.
History shows that every time the market crashes it is because too much
money had been committed to too few worthy projects. China's development
game can last only by allowing more people to join.
E-mail: younuo@chinadaily.com.cn
(China Daily 09/17/2007 page4)
Hot Talks
* What's your take of this piece of opinion about China?
* Should Beida recruit more recommended students?
* Nude women and Peking Opera: pornography or art?
* War in Iraq lost?
* Costa Rica cut ties with Taiwan: Who's next?
Most Commented/Read Stories in 48 Hours
Learn Chinese, Chinese language, Learning Materials, Mandarin audio lessons, Chinese writing lessons, Chinese vocabulary lists, About chinese characters, News in Chinese, Go to China, Travel to China, Study in China, Teach in China, Dictionaries, Learn Chinese Painting, Your name in Chinese, Chinese calligraphy, Chinese songs, Chinese proverbs, Chinese poetry, Chinese tattoo, Beijing 2008 Olympics, Mandarin Phrasebook, Chinese editor, Pinyin editor, China Travel, Travel to Beijing, Travel to Tibet
No comments:
Post a Comment