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Return of confidence

(China Daily)
Updated: 2008-09-20 17:09

The spectacular rebound of Chinese shares yesterday fully demonstrated how much investors have taken heart from the long-waited government rescue.

After losing 70 percent in less than a year, the benchmark Shanghai Composite Index surged 9.46 percent in the biggest single-day jump since 2002, with almost all stocks soaring to their daily upside limits.

Clearly, the Chinese government's latest efforts to stabilize the fragile stock market has worked well.

On Thursday, the government scrapped the stamp tax on purchase of equities and the State-owned investment agency Central Huijin announced it would buy shares of three major Chinese banks. Besides, the top regulator of State-owned assets also made clear its support for 147 key State-owned enterprises to buy more stocks of their listed subsidiaries.

All these official moves have come timely to put a floor on investor confidence as a worsening US financial crisis had sent stock markets across the globe tumbling over the past few days.

The fact that the government has taken the needed steps to protect the market from irrational sell-offs should highlight the importance the authorities attach to the healthy development of the domestic capital market.

It is particularly encouraging that the latest rescue include not only measures to calm investors' nerves for the moment but also possible solutions to underlying problems that have long affected investor confidence.

The adjustment of the stamp tax, a typical tool to help spur or cool demand for shares, can immediately cut the cost of transactions to invigorate the market.

More important, the purchase of shares by State-owned companies from the market might point to a way to address the chronic problem of a potential glut of shares due to reforms that are producing billions of newly tradable shares.

Admittedly, the rare rally on Friday does not guarantee a constant return of investor confidence in the Chinese stock market. The government had slashed the tax from 0.3 percent to 0.1 percent in April only to stop the fall of the market for a couple of days.

As a barometer of the national economy, which is basically sound, the market with current valuations nearing record low levels is surely expected to rebound. But it is still hard to tell if the rally will be short-lived or sustained.

Nevertheless, the latest rescue moves have made clear that the government is highly vigilant against the destabilizing effect a continuously falling stock market can exert on the national economy, especially when both are exposed to increasing external uncertainties.