China’s central bank predicts end of market rout

2015-09-07

China's central bank governor Zhou Xiaochuan pictured in 2011.

By

LinglingWei

BEIJING—Early this year, Zhou Xiaochuan, the governor of China’s central bank, joined a chorus of official voices talking up the nation’s stock markets as a way to help the economy.

Now, after an epic bull run turned bust, Zhou is seeking to reassure the investing public again, saying the rout in the markets is nearing an end.

In remarks to central bankers and finance ministers from the Group of 20 largest economies, who held two days of talks in Ankara, Turkey, Zhou said Saturday that the “correction in the stock market is almost done.” Moreover, the Chinese yuan is steadying after a devaluation last month, and that means China’s financial markets are expected to become “more stable,” according to a statement posted on the website of the People’s Bank of China.

The remarks come as investors and policy makers world-wide are becoming increasingly concerned about China’s slowing growth. Turmoil in Chinese stocks that started mid-June, followed by the currency devaluation, spurred fears that the world’s second-largest economy is on the verge of a much faster and deeper deceleration than Beijing is letting on, resulting in recurring currency, equity and bond selloffs in developing nations.

The published statement to the G-20 leaders is the first time Zhou has publicly addressed the market turmoil and the Chinese government’s response to it. He acknowledged what he called a “bubble” in Chinese equities, noting that the benchmark Shanghai Composite Index soared 70% between March and June. The surge, he said, was boosted by investors borrowing money to buy shares and had sowed the seed for risks.

Absent from the published remarks was any acknowledgment of Beijing’s own hand in fanning the flames. Early this year, state media frequently pumped up the stock market, playing up a national strategy of getting cash-strapped companies to tap a rising market in a bid to pay down their existing debts. In March, Zhou himself sent out what investors interpreted as a “buy” signal when he said allowing funds into stocks could help support the “real economy.”

Read: China cuts 2014 economic growth to 7.3% from 7.4%

Officials at the PBOC couldn’t be reached for comment Sunday.

After markets began plummeting in June, the government stepped in, ordering state brokerages and other companies to buy shares and restricting some types of selling. Zhou, who, according to people close to the central bank, had opposed aggressive intervention, also sought to publicly justify the government’s subsequent intervention aimed at stemming the stock slide, saying the efforts were intended to “avoid systemic risks.”