Chinese stocks | State Council: China's stock volatility won't singe economy

State Council: China’s stock volatility won’t singe economy

July 9, 2015 4:27 PM (UTC+8)

 

It’s another day on the roller coaster we call the Chinese stock market.

After a series of government moves to stop the huge selloff, the Shanghai Stock Exchange Composite Index jumped 5.8% to 3,709 on Thursday. It was the benchmark’s largest one-day gain in six years. The Shenzhen Stock Exchange Composite Index leapt 3.8% and the CSI 300 Index of the 300 largest stocks surged 6.4%.

With half the tradable securities frozen and the government telling banks, brokers and insurance companies to buy stock, it’s not that surprising. It’s still anyone’s guess how long that will hold. But with the Greek crisis moving from boiling to simmer, people are beginning to take a closer look at what’s happening on China’s markets and the implications for the economy.

China’s cabinet, the State Council, on Wednesday said “the country could realize its major economic and social development targets this year,” reported Xinhua.

Last year, China’s economy grew 7.4%, its slowest rate in 24 years. This year, with a declining housing market and industrial overcapacity, the government targets growth of 7%. While significantly lower than China’s double-digit growth of the past decades, it’s still one of the fastest growing economies on the planet.

“Positive signs have been increasing in the last two months and structural readjustment has been accelerated,” Premier Li Keqiang said in a statement.

For the first quarter, China posted economic growth of 7%. The World Bank forecasts 2015 growth of 7.1%, and 7% next year.

Recently, China’s manufacturing purchasing managers’ index (PMI), a key measure of factory activity, has been steadily rising along with economic indicators, such as electricity consumption, according to Xinhua. In addition, structural reforms are helping to create higher-quality and innovation-driven growth.

Meanwhile, the government’s monetary and fiscal policies have sparked an upturn in the housing market.

“Home sales in China’s tier-one cities, like Beijing and Shanghai, surged 42.9% in the first half of this year on a yearly basis, with the uptick in tier-two cities at 16.9%,”
according to Xinhua.

The State Council on Wednesday said, “that more than 250 billion yuan ($41 billion) in misused or dormant funds should be reclaimed by fiscal bodies, and the money should be invested in underfunded areas,” according to Xinhua. It also “demanded that policies, reform measures and projects be implemented to ensure economic growth remains in a proper range, as they will promote quality growth and upgrading.”

Growth in China’s service sector remains robust, reported the state agency, especially in advanced services such as banking and insurance, and consumption has grown slightly faster than investment in recent years.

On the negative side, consumer inflation inched up in June even as deflation remained an issue among wholesalers for the 40th consecutive month.

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