By BETTINA WASSENER
Published: April 5, 2012
Article from The New York Times
HONG KONG — Stocks in China rallied on Thursday, helped by the country’s newly announced decision to open its markets to more foreign investment and expectations that Beijing might soon take additional steps to bolster flagging economic growth.
The mainland Chinese market has lagged behind much of the world this year amid worries about the health of the Chinese economy, where growth has slowed sharply in recent months.
That trend reversed itself Thursday, with the Shanghai composite index gaining 1.7 percent and the Shenzhen index rising 3.1 percent on the first day of trading after a three-day holiday in mainland China.
Most other markets in Asia fell Thursday on renewed concerns over the euro zone crisis after a government bond auction by Spain on Wednesday yielded disappointing results.
The Nikkei index in Japan closed down 0.5 percent and the Hang Seng index in Hong Kong fell 0.95 percent Thursday.
Chinese markets were buoyed by expectations that foreign investment would increase in line with a loosening of quotas that cap the amount of foreign capital that can flow into domestic stock and bond markets in mainland China.
The liberalization of the investment program, announced Tuesday, raised the quota for qualified foreign institutional investors to $80 billion from $30 billion. Analysts said the new quota was not especially large but still symbolically important because it appeared to be part of China’s gradual efforts to overhaul its tightly controlled capital markets.
The “move is a sign of a push for greater capital account opening,” said Dariusz Kowalczyk, a senior economist at Crédit Agricole in Hong Kong. “It is also a step toward attracting more foreign investment.” At the same time, many analysts predict Beijing will continue its drive to lift the economy with measures that some say could include an interest rate cut this month.
The Chinese economy, a leading engine of global growth, has been flagging in recent months. Government efforts last year to hold back excessively rapid expansion and the inflation that accompanied it then are still weighing on the economy. At the same time, demand for Chinese-made exports has waned amid economic turmoil in Europe.
Manufacturing sector data for March painted a complex picture. Growth appears to have been resilient among large state enterprises, but lagging at smaller, private companies as a result of tight liquidity and slowing demand. That has complicated policy makers’ balancing act, analysts said: Beijing needs to encourage growth, but at the same time avoid reigniting inflation.
The central bank has loosened the reins on bank lending twice in recent months in an effort to stimulate economic activity, and many analysts say they expect more cuts to the so-called reserve requirement ratio for lenders in the coming months.
Economists are less consistent, however, in their views on whether the bank might announce more sweeping measures, like a cut in the lending rate.
Mr. Kowalczyk of Crédit Agricole said the central bank might cut the rate, possibly before the release of first-quarter economic growth data, due April 13.
Those figures are likely to show that the economy expanded about 8.4 percent from a year earlier, but only 1.6 percent compared with the preceding three months, Mr. Kowalczyk said. He predicted that would prompt more stimulus from Beijing. “The big guns have not been fired yet,” he said. “But I think they may do so soon.”
Some other economists said that the authorities may stick to smaller, selective measures like tax cuts, added financial market liberalization or increased spending on education and health care to buoy growth.
“You could call it ‘easing by reform’ — gradual and small movements to unleash the potential of consumption,” said Yao Wei, China economist at Société Générale in Hong Kong.
Ms. Yao said recent comments by policy makers appeared to indicate that efforts to overhaul the economy were picking up pace. “The focus appears to be more on the quality of growth, rather than the speed of growth,” she said.
A version of this article appeared in print on April 6, 2012, on page B5 of the New York edition with the headline: Indexes Up as China Acts To Lure Foreign Investors.
Article from The New York Times
