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Controlling capital market boom without hurting economy

By Robert Blohm (China Daily)
Updated: 2007-05-23 10:57

In fact, energy security is a matter of having the world's most efficient market pricing mechanisms and global market players so that China does not pay higher prices than the rest of the world for resources.

A final ingredient for a healthy, stable stock market is efficient time management both in the media and in capital investment. Fair markets require near instantaneous media access to and transmission of information because market reaction time to information is fast and furious.

Insiders benefit from information delay whether due to slow, ponderous decision-making by officials or due to slow-moving media. China's management, while versed in the economics of instantaneous current costs, is only in the process of learning management of long-term capital costs and capital budgeting through properly timed and located capital investment and risk management. These skills are ultimately driven by a full-scale capital market and commodities markets, which China so far has only elements of.

China's stock market boom is signaling that all China's market components ultimately need to be in place because one, two, or three components - say the stock market, or the central bank, or even State enterprises trading stocks - cannot do the job of the whole.

Reversing the marketization process is not an option. The stock market, like the horse let out of the barn, is very hard to put back inside again.

The author is a US-Canadian economist and investment banker based in Beijing. He teaches at North China Electric Power University

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