CHINA / Chinadaily.com.cn Exclusive
Stock slump continues in panic selling
By Dong Zhixin (chinadaily.com.cn)
Updated: 2008-01-22 10:47
The benchmark Shanghai Composite Index nose-dived 6.9 percent within 30 minutes of the opening of trading, to 4,575.53 points, the sharpest fall in half a year. It recovered part of the loss to regain the 4,700-mark, as bargin-hunters return.
Coupled with less money available for investment was an increasing supply of shares.
Ping An Insurance, listed in both Shanghai and Hong Kong, announced on Monday a plan to raise some 150 billion yuan through new shares and bonds, the largest re-financing plan in the history of the country's stock market.
That sparked fears that other big firms might follow suit, resulting in a jump in the number of outstanding shares. In theory, when supply outstrips demand, the price will fall.
Another negative factor is concerns about the impact of a potential US recession on the Chinese economy.
Fears are mounting in the United States that the sub-prime crisis might pull the country's economy into a recession, prompting President George W. Bush to call for up to $150 billion in tax relief for consumers and business to boost the economy.
China's exports will be badly hit if consumer demand weakens in the US -- a major destination for Chinese exports, Zhang Tao, deputy head of the international department of the People's Bank of China, told a financial forum during the weekend.
A drop of 1 percentage point in US economic growth would shave 1.3 percentage points from China's growth rate due to lower exports, Citigroup estimates.