No matter how softly the Chinese government may try to say that they won’t prick the market bubble, their message is obvious.
This weekend both Premier Wen Jiabao and some senior policy makers came out and made it clear that they won’t do anything that could slow down the roaring market.
Caijing: Speaking at a media briefing on Aug. 7, Zhu Zhixin, vice director of the National Development and Reform Commission, said China is at a crucial stage of economic recovery and maintaining stable and fast growth is the government’s top priority
Also at the briefing, People’s Bank of China vice governor Su Ning said contrary to media reports following the Aug. 5 central bank report, China is not fine-tuning monetary policy. “The fine-tuning is not directed at monetary policy, but it is the focus, intensity and pace of the implementation of monetary policy that is being fine-tuned,” Su said. “It is a fine-tuning, not a big adjustment.”
When questioned about concerns over asset price bubbles, Su said the central bank closely monitors changes in asset prices and the reasons behind the changes, but asset prices are not the direct target of the PBOC’s monetary policy. Vice minister of finance Ding Xuedong told reporters at the briefing that the government also aims to ensure equity market stability.
Equity market stability. Those are the magic words.
See, It’s hard for the Chinese government to establish a shade of grey in this matter, no matter how hard they try. Either they will tighten things or not. Either they prick the market bubble or not. And this weekend they made it clear- they won’t. We aren’t alone in this interpretation, Goldman certainly read it this way as well.
Bloomberg: “The main message is the government will keep the policy stance loose, at least for now,” Goldman Sachs Group Inc. economists Yu Song and Helen Qiao wrote in a report dated Aug. 7. “This should clear the recent confusions in the market about the government’s policy stance and preclude the possibilities of hikes to interest rates, reserve requirement ratios in the near term,” they wrote.
Nevertheless, on Monday Shanghai’s CSI closed slightly down even after these positive remarks. Perhaps even a green light from the government isn’t enough to calm jittery traders.
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