NEW YORK - The overheating of the Chinese stock
market is a structural problem that will be resolved by developing more
financial products and cracking down on illegal activities, a Chinese securities
regulatory official said Thursday.
Hu Bing, deputy director-general of the market supervision department at the
China Securities Regulatory Commission, said at a conference in New York that
authorities are seeking to roll out more products to broaden investors' options,
such as real estate investment trusts, or REITs, as well as listed
Other eventual offerings will include derivatives products such as
stock-index futures and warrants. These products will be launched "when
conditions are ready," Hu said at a China Investment Forum sponsored by Merrill
Lynch and Institutional Investor. He said he couldn't provide a clearer timeline
for when those products would be ready.
Hu acknowledged a "liquidity surplus problem" that is contributing to the
overheating of the Chinese stock market and noted that hot-money inflows coming
in through illegal channels are exacerbating the problem. Tackling the liquidity
issue is a long-term project that "cannot be resolved just by (raising) the
interest rate," Hu said. "So the structural problem has to be resolved using
Earlier this week, the Chinese government tripled its stamp tax on stock
trades in an effort to rein in the equity market. The Shanghai Composite Index
more than doubled in 2006 and is still up around 50 percent so far in 2007.
Hu said China's capital markets are still young and face a "golden
opportunity" to develop their depth and breadth. The majority of individual
investors rely on rumors or inside information to make their decisions, leading
to speculative gains in stocks, he said.
Hu said authorities are stepping up efforts to crack down on insider trading,
"but because this is a transitioning society in an emerging market, it will take
a long time."