China’s Stock Price Halved in 8 Months

The Shanghai Stock Exchange Composite Index temporarily fell below the 3,000 mark and reached 2,992.35 during the day, but closed at 3,024.24 Wednesday, tumbling 48.09 points from the day before. Given it reached 6,000 in October 2007, it has almost halved.

China’s Xinhua News Agency pinpointed worsening economic conditions at home and abroad resulting from surging oil prices as the reason for the tumbling stock market. According to the state-run news agency, as the global economy has shown signs of a slowdown due to the oil price hike, the growth forecast for Chinese companies has darkened, dampening investor confidence.

What also stands behind the falling stock market is a string of news signaling corporations’ poor performance and the Chinese government’s tight-money policy. Recently, the Chinese government announced it would raise the bank reserve requirement ratio since it has faced inflationary pressure due to surging foreign currency reserves.

The Chinese government introduced measures such as transaction tax cuts to boost the nation’s stock market when the Shanghai Stock Exchange Composite Index broke the 3,000 mark during the day, for the first time in 2008, on April 22. With the index falling below 3,000 again, experts argue that the government should implement more measures to prop up the nation’s stock market.

The National Bureau of Statistics of China announced yesterday that the Producer Price Index increased 8.2 percent to set a new high in three years. Since an increase in producer price is reflected in the prices of exported goods, it can invite worldwide inflation.

bonhong@donga.com