Boosting investor confidence

The Chinese government's consumption-boosting policy needs several crucial steps to help pull the country through these troubling economic times.

The first thing the government needs to do is restore investor confidence (which is more precious than gold at the moment) by boosting the securities market. It should push the Shanghai Composite Index to 3,500 or 4,000 points early this year, helping investors regain their footing.

Then the government should initiate some fiscal expenditure projects to spur new investment, ideally no later than March, further boosting confidence in the market and halting its downward spiral.

The Chinese economy will likely to bottom out in the third quarter of this year, if consumption and investment picks up in the new year. Favorable economic data and figures released then would be a much-need shot in the arm.

Finally the government needs to revive the housing market in 2010, which will bring about a full recovery of the Chinese economy (without overheating).

China could be the first economy to recover from the global recession if it follows the right steps to prop up domestic demand and stimulate its economy. The Chinese mainland's capital market will also gain pricing power if that happens and may no longer be swayed by movement in the Hong Kong stock market.

China has been lucky; it has had ample opportunity to learn from others' mistakes. The banking failures on Wall Street may have helped China avert massive losses in its overseas foreign exchange investments.

But luck can't last forever and China needs to take active steps to advance financially.

Zhao Xiao, professor with Beijing University of Science and Technology www.cnstock.com

(China Daily 01/05/2009 page2)