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Commentary: China confident on sound capital market development

Xinhua, July 6, 2015 Adjust font size:

China remains confident to achieve a stable and sound development of its capital market as a raft of supportive measures is expected to smooth out the stock market volatility.

Though the recent losing trend in the stock market has rattled investors, pessimism about the future is uncalled for.

The market will be back on sound footing as the economy keeps improving, the liquidity remains abundant and the financial regulators have responded with timely measures.

The government has decided during the weekend to cut the number of new shares hitting the market, called on top brokerages to buy massive amount of shares and pledged to raise money through multiple channels (including soliciting help from the central bank) to keep the market buoyant.

To inject more liquidity, the People's Bank of China simultaneously cut interest rates and the reserve requirement for banks on June 27. The last time that the central bank introduced such a forceful easing was back in late 2008 at the height of the global financial crisis.

The market has taken a turn for the worse since mid-June on fears over the sustainability of soaring share prices as well as government moves to cool margin trading.

The Shanghai Composite Index has lost around 29 percent from a peak of 5,178.19 points on June 12.

Price to Earning Ratio of major indices have dropped (15 for Hushen 300 and 56 for the Small and Medium Enterprises Composite), suggesting that risks of overvaluation have come down.

While a meteoric market rise pushed up by a frenzy of speculation is dangerous, it is equally damaging to let panic rule and hamper the market's future growth.

The capital market, as a key component in modern economic system, is at the forefront in the allocation of resources.

As China's economy enters a phase of "new normal" featuring slower but more sustainable growth, the capital market has at the same time assumed a more important position.

Efforts are needed to nurture an open, fair and just stock market. In this way can we make investors stay confident.

As China aims for medium high growth, continued efforts should be made to ensure a long and stable development of its capital market. Endi