02
AprKey Points
1. The American market has experienced a 10-year-long growth. This not only has to do with the extraordinary role of its financial structure and capital market within its financial system, but also is closely related to the administration’s policy supports.
2. The American market’s fundamentals are not as robust as the momentum of its market growth, as its fragility and bubbles have already been fully unfolded.
3. Chances are that the outbreak of COVID-19 will translate into a global financial crisis if the world, involving major economies like the US and the Europe, fails to contain it in a relatively short period of time.
4. For the Chinese market, the negative factors that emerged in the early stage have largely disappeared. As for the imported risks, we are still capable of containing them since we have experience in handling such challenges.
5. The Chinese market has got through the toughest risks. Hopefully, investors would also make it through.
6. It only mirrors a backward financial system if a nation’s wealth relies too much on properties.
7. Despite the Chinese financial and capital markets are still struggling with an exploratory stage, or perhaps sometimes disoriented, its future still needs confidence.
Global finance, especially the capital market, is entering an unprecedented turbulence
In the recent 10 trading days, the US stock trading market has triggered the fourth circuit breaker, which is unprecedented in the US history. The judgment is made based on the following grounds: first, the past 10 days has seen the S&P 500 plunged by 30%, or even a little bit more. Second, this turbulence is not confined to US stock market, but has a global reach.
China’s capital market (stock market)
The significant drop in the Chinese market is mainly brought about by external risks, and there is no need to panic. For China, the negative factors emerging in the early stage have largely disappeared. As for the imported risks, we are still capable of containing them since we have experience of handling such challenges. What is needed is alert to these imported risks, instead of panic.
Promote the financial reform, opening-up and development in the Chinese market, including its capital market
On the economic policies front, we must restore the momentum for the Chinese economy, for which the resumption of enterprises is critically important. At present, the external risks have somewhat impacted the international trade sector. As we know that the economic growth is mainly driven by investment, consumption and export. The consumer market has provided rather limited momentum in the first quarter, while still shrinking. From the perspective of international trade, the outbreak won’t make a big or a long-term difference if it can be contained in a relatively short period of time.
In the short term, policies should focus on getting enterprises through this tough period. Fiscal policies play a critical role in handling the influence caused by the outbreak to the service sector. In terms of monetary policies, China has used a series of monetary policy tools, including lowering the rate of deposit reserve, to guarantee the market liquidity and boost the investors’ confidence.
In the long run, we must focus on the reform, opening and development. First, the key to reforming China’s finance system lies in marketization, or more specifically, marketizing the financial market with disintermediation. Second, continue to internationalize China’s financial market. The financial openness means that the Chinese RMB can be freely converted. The exchange rate also demands a highly liberal financial market. What does that mean? Well, that would possible create certain fluctuations in the exchange rate. Despite the Chinese financial and capital markets are still struggling with an exploratory stage, or perhaps sometimes disoriented, its future still needs confidence.
(Prof. Wu Xiaoqiu, Vice President of Renmin University of China)
Opinions