Reforms will enhance growth potential

Since the beginning of December, the MSCI Emerging Markets Index has declined 13 percent. The sell-offs in many emerging markets, especially Turkey, Argentina and Brazil, were triggered by their sharp currency depreciation as a result of the United States' tapering of its quantitative easing, as well as market fears of an external debt crisis, for example in Turkey; the negative impact of local rate hikes, for instance in Brazil and India; inflation in Argentina, Brazil, India, Russia, South Africa; and potential economic contractions, as well as political instability in Turkey and Thailand.

Interestingly, the Hang Seng China Enterprises Index has also dropped by a significant 16 percent during the same period. This decline was close to the fall in the country equity indices of Turkey and Argentina and a little sharper than that of Brazil. It appears that the market believes that China's economic situation has deteriorated as much as those in Argentina and Turkey in recent weeks. Some investors are now asking when Chinese government will ease its macroeconomic policy to stimulate the economy.

However, this is a question no one in the Chinese government is talking about, simply because there is no need to.