Opinion / You Nuo
Time to take heed of economic warnings
By You Nuo (China Daily)
Updated: 2007-06-25 06:49
It was a rare moment, sitting among about 100 young reporters mainly from
media in the Pearl River Delta, listening to a talk by Wang Shi, probably
the largest property developer on the Chinese mainland, focusing on the
"bursting" of the economic bubble.
He did not give a time frame, but said, emphatically, that the present
near frenzy in stock and property investment, is not sustainable, and
will one day come to the point of explosion or find other ways to release
internal pressure.
One does not usually encounter a leading entrepreneur expressing such
views on macro-economics.
But Wang is not alone.
Many economists have argued that China is in the middle of a great change
that will lead to a very different way of development.
Even most stock traders would have to agree. They have, out of a sense of
urgency, been rushing to invest in the market.
At the start of the year, almost 300,000 new trading accounts were being
opened in a week. This has led to China's total retail investors'
accounts to exceed 100 million.
Their time frame is also very short. It is only between now and the third
quarter of 2008, when the Beijing Olympics closes. They know - as a
Chinese saying goes, there is no party that lasts forever. They are
grabbing whatever there is on the table at the moment.
They believe they have made the right decision, although their way of
reasoning is totally against economic logic. They think central
government officials cannot afford to lose face with a major stock market
plunge when the Games are just around the corner.
Of course, no government deliberately tries to dampen investors'
enthusiasm. Investors got hurt seven years ago, but that was because the
government was inexperienced in managing the capital market - and the
market economy as a whole.
However, stock traders are mistaken in thinking that the government will
manage the market primarily for political reasons - like how to look good
during the Olympics.
The government will not offer them simple protection, even less any
pledge on financial returns.
The best thing is not to "talk down" the stock market when it appears too
bullish, and to "talk up" the market next day when some investors have
incurred heavy losses.
The government should avoid sending messages that may give investors the
impression that there are officials checking their grudging blogs from
time to time, and are sympathetic over their losses.
This is not the way to run a benevolent government, much less a
responsible one for the long-term interests of the public.
Now, when thinking people are talking about post-bubble scenarios while
retail investors continue to harbor wishful thoughts of earning profit on
whatever stocks they buy, economic policymakers will have come to an
ultimate decision: Pamper the insatiable appetites of investors and keep
the party going.
Or for the sake of China's long-term health, take reasonable action to
prick the small bubbles before they grow into large ones - and forget
about the Olympics.
E-mail: younuo@chinadaily.com.cn
(China Daily 06/25/2007 page4)
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