Economists and market experts in China on Thursday claimed warning signals of a market slide may have been ignored, on a day when Chinese shares rebounded as the government put in place more measures to prop up shocks.
Xinhua news agency quoted China’s central bank as saying Thursday that it will continue to support liquidity need of China Securities Finance Corporation Limited (CSF), the national margin trading service provider, to stabilise the stock market.
It injected 35 billion yuan ($5.7 billion) into the money market through open market operations, the fifth cash injection since June 25.
Experts said the signs should have been interpreted much earlier. “I predicted this months ago in my class,” claimed Oliver Riu, professor of finance at the Shanghai-based China-Europe International Business School (CEIBS). “This bull market was clearly engineered by the government to reduce the cost of capital, incentivise innovation and to deepen its efforts at economic reform. Unfortunately, the initiative has been hijacked by a group of greedy individual investors using high leverage to line their pockets.”
“As the government began to deleverage margin trading, the whole market began rushing to the blocked exit door,” he said.
“People tend to ignore warnings when they are enjoying the fruits of the bubble,” said Gary Liu, executive deputy director of the think-tank, Lujiazui Institute of International Finance.
“There are many experts backing the bubble, saying it is good for China’s economy.”