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Foundation of China's stock market is in danger of collapse

www.chinanews.cn 2005-01-19 16:47:33

Chinanews, Jan. 18 - On January 17, 2005, the Shenzhen composite index
plunged to a record low of 305.34 points before closing at 306.44 points.
With today's sharp drop in both the Shanghai and Shenzhen stock markets,
the Shenzhen composite index, regarded as the best representation of the
actual composition of the stock market, hit a record eight-year low. The
domestic stock market, with only fourteen years in its entire history, is
currently facing its most severe test.
Huadian Power International Corporation Limited, expected to be the first
to launch an IPO on a mainland exchange after the implementation of the
IPO pricing inquiry mechanism, published its IPO prospectus as scheduled.
The company would issue a maximum of up to 756 million A shares, out of
which no more than 196 million shares would be allocated to its parent
China Huadian Group and no more than 284.5 million A shares would be
allocated to internet investors after cumulative bidding and price
inquiries. Starting from today, Huadian's lead underwriter plans to make
initial price inquiries in Beijing, Shanghai and Shenzhen's 77 registered
institutions authorized by the China Securities Regulatory Commission.
The news that China has officially resumed the IPO mechanism, which had
been suspended for more than half a year, immediately caused panic in the
already bearish market.
Relevant insiders said that the panic was a result of people's concern
about a new round of rapid market expansion and a possible price decline
in the second-grade market.
According to relevant reports, at the time the Shenzhen composite index
hit its eight-year record low, the Shanghai composite index closed at
1,216 points. In fact, the Shanghai index would be at 1000 if the first
day price jumps of all IPO's in that index were excluded. It appeared
that the "thousand points theory" has become a reality.
Insiders pointed out that today's performance by the Shenzhen and
Shanghai stock markets has brought the mainland markets into a crucial
phase. Even though the China indexes had only fallen to levels comparable
to those on international exchanges, irrational panic has appeared in
China's stock markets. Therefore, if the authorities do not step in,
Shanghai and Shenzhen's stock markets could be in danger of collapse, and
the safety of China's financial system will also face a serious threat.
The many lessons learned from past international markets clearly indicate
that now is the time for China's authorities to take effective measures
to rescue the markets and help investors regain their confidence.

E-mail: zhangqinghua@chinanews.com.cn Tel: 8610-88387443 Fax:
8610-68327649

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