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BEIJING: China's fourth rate hike in the past year is partly aimed at taming a rampant bull market, but the move is unlikely to deter the country's millions of small investors, analysts said.
The central bank raised interest rates, widened the yuan's narrow trading band and raised mandatory bank reserves, in a series of moves apparently designed to cool blistering 11.1 per cent growth and head off foreign criticism.
The measures were announced late on Friday, just ahead of a meeting of Group of Eight finance ministers in Germany and this week's high-level meeting between Chinese Vice Premier Wu Yi and US Treasury Secretary Henry Paulson.
"They're obviously targeting both the stock market and the discussions," said Stephen Green, an economist with Standard Chartered Bank in Shanghai.
"The central bank's decision is a signal demonstrating the government's will to avoid overheating," said Xu Dianqing, a professor at Beijing University's economic research centre.
"The most immediate significance is to say that the central government will not sit and do nothing faced with a persistently booming stock market."
Worries over the stock market have multiplied as share prices continue to skyrocket, notching up several record closes for the Shanghai bourse.
On Thursday, Hong Kong billionaire Li Ka-shing called for an end to the buying fever, and the official China Daily urged investors to "stop the unstoppable."
"Obviously, a growing number of Chinese are pulling their money out of saving accounts and sinking it into the stock market," it said in an editorial.
"If the authorities' concern over the market danger is serious enough, they may have to take preemptive actions to deflate the bubble now."
However, Professor Ning Xiangdong of Beijing's Qinghua University was concerned that the cooling measures would not be enough with investors currently going "crazy" for shares.
"In terms of theory, the central bank's measures will take effect on the stock market. But I don't know if they can really take effect or not," he said.
"Because currently, the Chinese stock market is not reasonable. Nearly everyone is speculating on the stock market.
"Even people who only have a few tens of thousands of yuan in savings are investing it all in the stock market. People are crazy now. They talk about stock issues at work, at home ... they only care about speculation, they don't care about what the government has done to control the economy."
CITIC Securities analyst Ma Qing said: "If the bourse continues to rise on Monday, it's time to despair."
Professor Sun Lijian, from Fudan University's centre for research into China's economy, said the new measures would have only a temporary effect.
"I think the measures will temporarily take effect on the stock market, but in the long run, the stock market will rise," he said.
Li Huiyong, chief economist with Shenyin Wanguo Securities based in Shanghai, said an interest rate rise usually hit company profits, producing a knock-on effect on their stock market performance.
But he said interest rates were still too low to have much negative impact.
"According to our estimate, (China's) one-year deposit interest rate reaches 3.06 per cent after the hike, still quite a low level. The one-year loan interest rate is 6.66 per cent after the hike, still lower than the yield rate of most of the industries," he said.
Li Maoyu, analyst with Changjiang Securities based in Shanghai, agreed, saying the rate rise would "only slightly increase the overall expenditure of these companies."
"Money will keep flowing into the capital market as the funds in the stock market are mainly personal savings," he said.
- AFP/yy
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