New rules needed to allay market fears

International experiences over the past decades have proved that the stock market usually gains strong driving forces from continuous economic growth and the appreciation of the currency during a country's economic takeoff.

Nearly all researchers expressed their confidence in the Chinese economy for 2008 as the year started. Their optimism stemmed from two facts: the long-term elements promoting economic growth were considered unlikely to be reversed during the year; and the consumption demand was expected to remain active and investment in fixed assets strong.

However, a dramatic turbulence has hit the stock market since January despite the theories and the proven facts. While the US stock market was down by less than 20 percent as a consequence of the subprime crisis, the Shanghai Composite Index, the benchmark of the Chinese stock market, slipped by over 40 percent from its peak by mid April.