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Chinese Stock Markets Drop to Multi-Year Lows
Han Shan
2/3/2005



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China’s stock markets have dropped steadily since the new year, reaching multi-year lows.

The General Index of the Shenzhen Stock Exchange has dropped to its lowest point in eight years, and the General Index of the Shanghai Stock Exchange dropped to 1199.17, its lowest since the market crash of May 19, 1999.

Analysts believe that the slump is because of some old market mechanisms are at work again. For instance, the ban on new stocks was removed, and non-circulating stocks are being traded in the stock exchanges, making investors feel like the “full circulation” is coming. The separation of stock options, the quality of listed companies and the risk of stock companies all had a part to play as well, the Central News Agency said.

China’s markets are typical manipulated markets. The huge fluctuation in the market is closely related to the internal conflicts and battles of the Chinese Communist Party for power. The CCP official news agencies intentionally kept a damper on reporting of the death of former CCP General Secretary Zhao Ziyang, fearing the incident could incite social unrest.

It is reported that the current general secretary, Hu Jintao, leads an emergency situation leader group, which takes full responsibility in dealing with any uprising caused by Zhao’s death. The party made Zhao’s death its top priority, and was too busy to cope with the fluctuation of the stock market.

An article in International Finance pointed out that the source of all the troubles in China’s stock markets is that its purpose is merely to trap money. Chinese economist Wu Jinglian attributes the bubble stock price and investors’ losses to the government’s taking money from the market. He believes that the market is specially designed to finance state-owned enterprises, creating intrinsic drawbacks in the system.

A survey by Xinhua News Agency at the end of last year indicated that in the past three years nearly half of investors lost more than 50 percent of their investment, 75 percent of investors choose “never to invest in the Chinese stock market again.” Investors think that the China Securities Regulatory Commission should take full responsibility because it allows listed state-owned and privately held companies to make false reports.

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