Free stocks from $10-trillion roller-coaster

Updated: 2015-07-04 09:35

By Zhu Qiwen(China Daily)

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Explanations abound for the continuous decline of shares. Some observers say the ridiculously high prices of shares, especially those of some newly listed high-tech companies which even their founders cannot resist cashing in on, are to blame.

Others have blamed poorly regulated margin lending as the root cause of the recent stock boom and the ongoing bust. Leveraged stock investment through gray-market or official-margin lending has substantially increased the risk of a snowball effect with their borrowers being forced to liquidate their positions when the shares started dipping.

Still others attribute the bust to blind optimism fueled by the surge of retail investors into the market. It was reported that the number of trading accounts holding at least some stocks hit 68 million by the end of May, up 27 percent year-on-year. And a few even believed the rumors that foreign capital was maliciously attacking the Chinese market.

Admittedly, it will be almost impossible to identify the exact reason for the stock bubble. But that does not mean policymakers can wait out this stock storm.

The yearlong surge of shares has a lot to do with most investors' belief in the Chinese government's vow to transform the country's growth model through reforms and innovation during which the stock market will play a central role. If policymakers cannot timely restore order in the stock market, whose long-term performance is based on the real economy but led by investors' expectations, the dramatic fall could result in huge financial losses for tens of millions of retail investors and their families, as well as related financial institutions. Worse, pessimism will spread in the market undermining enthusiasm and fund-raising for innovation-driven growth.

Therefore, the policymakers have to take resolute measures to prevent stock panic. The failure of expedient policies to boost the market in the past days should serve as a warning against confusing and piecemeal measures that would only wear thin investors' confidence.

Now is the time for the policymakers to take effective steps to eliminate too much risk-taking to develop a booming stock market for innovation-led economic transformation.

The author is a senior writer with China Daily. zhuqiwen@chinadaily.com.cn

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