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Index dives deep, nearly losing 4,000-point battleground

By Li Zengxin (chinadaily.com.cn)
Updated: 2007-06-01 16:15

Regarding the recent turbulences seen in the stock market, vice governor of the People's Bank of China Wu Xiaoling said in Brussels that if the market fails to maintain stability, investor confidence of Chinese people will be severely damaged, which might adversely affect the consumer demand. Her comments reflected the concerns by the central government over the excessive volatility problem.

Analysts attribute the volatile performances of the market to the excessive liquidity, or the discrepancy between capital inflow and outflow.

From the outflow aspect, the number and fund-raising volume of initial public offerings (IPOs) in May, both hit record low. There were three IPOs, which raised 986 million yuan. Anhui Annada Titanium Industry, listed on May 30 raised 162 million yuan, the smallest IPO fund-raising record so far this year.

In comparison, there were nine IPOs, raising 18.859 billion yuan in January, 11 companies raising 42.661 billion yuan in February, five got 2.108 billion yuan in March and 14 with 55.1 billion yuan in April.

In addition, Chinese banks have used only 6 percent of their quotas for overseas investment. The 22 banks with qualified domestic institutional investors status have invested US$800 million to US$900 million to date, leaving the rest of the US$14.8 billion quotas untouched.

But the regulators have already stepped up effects to divert some of the capital to flow to other investment channels rather than investing in the domestic stock market. As the latest move, the China Insurance Regulatory Commission will allow insurers to invest in overseas equity market, according to an official from the insurance watchdog yesterday.

On the other side of the story, the State Administration of Foreign Exchanges is currently amending the forex rules, according to the 2006 financial market report by the central bank.

The new measures include a lifting of the single qualified foreign institutional investor (QFII) quota, shortening of the lock-up period, adjustment of account management system to allow multiple accounts for different types of funds by each QFII, and new preferential treatments to A-share open-end funds.

Currently the upper limit for a single QFII quota is set at US$800 million. Of the existing QFIIs, UBS has already used up the amount. Also in this month, the forex regulators have raised the total QFII quota from US$10 billion to US$30 billion.


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(For more biz stories, please visit Industry Updates)



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