- The Washington Times - Sunday, April 20, 2008

BEIJING — A year ago, the mantra for millions of novice investors in China was simple: Buy stocks, make money. The Shanghai composite index soared to five times its value of two years earlier, and the euphoric mood of China’s new army of speculative traders was captured by the hit online song “I won’t sell my shares even if I’m dead.”

Since the index peaked at 6,124 points in October, though, elation has given way to depression. The market has plummeted by more than 40 percent, and small-time investors, already battling rising inflation, are suffering the most.

Mrs. Wang, a Beijing retiree who gave only her last name, spent months being regaled by moneymaking yarns from her friends and relatives, many of whom were among the 300,000 Chinese people opening stock accounts every day. She dived in at the end of last year, but her timing could not have been worse.

“I wanted to earn quick money to offset the food-price rises. My pension is only 700 yuan [$100] a month. At first, I made about 2,000 yuan, but now I’ve lost a third of my savings. I had no idea it could go down this low. Everyone is suffering,” she said.

Trading offices across China are full of people like Mrs. Wang — urban retirees who have gambled their life savings on something they knew little about. Now they are looking for someone to blame, and accusations based on rumors of shady insider dealings fly. Government officials are often the first to blame.

“There is too much corruption in China. Officials are buying into companies and dumping unqualified stocks on the market. When these shares go down, we investors, the laobaixing [common people], pay for these actions. Go and speak to anyone here, they’ll tell you,” said one enraged investor.

It wasn’t supposed to be like this, not until after the Olympics at least. Many investors had total faith in the government’s ability to control the market and were convinced it would never risk a threat to social stability by allowing stocks to fall before the August event.

However, the market went into decline at the end of last year, as fears of a global economic downturn rose and the government moved to rein in climbing consumer prices by tightening its credit policy.

A slowdown in profits of listed companies and the release of rafts of previously undesirable shares onto the market, creating an oversupply, also dealt major blows.

The government has said it is treating inflation, which measured 8.3 percent last month, as its top priority, and is aware that analysts agree the free-falling index will not affect the overall economy.

China posted growth of 10.6 percent in the first quarter, the State Council, China’s Cabinet, said Wednesday. It signaled a drop from 11.2 percent in the previous quarter but was still well above market predictions of 10 percent.

“This year’s sharp drop in equity prices has grabbed market attention, but spillover to the rest of the economy is so far limited,” said Ben Simpfendorfer, an economist at the Royal Bank of Scotland.

“The fall in stock prices may yet hurt consumption as individuals increase savings for retirement to make up for recent losses,” he said, adding however, that “consumption responded belatedly and only modestly to the rise in stock prices, so the potential pullback in consumer spending may be limited,” he said.

Struggling investors are pleading with the government to introduce favorable policies, such as lowering a duty on stock trading, raised from 0.1 percent to 0.3 percent last year to cool the market.

So far, they are unappeased. The government has remained deliberately vague about its intentions, not wanting to risk upsetting investors by appearing to ignore their plight.

Instead, state media commentaries have urged investors not to panic, and noncommittal State Council statements have promised to promote the market’s “stable and healthy development.”

Hu Shuli, founder of the influential business magazine Caijing, wrote recently that investors should not expect the government to rush to their rescue.

“The government should not intervene, cannot intervene, and there is no need to intervene,” she wrote.

Some investors have not given up hope of a change of fortune brought about by the Olympic Games.

Analysts, though, disagree over whether the market has bottomed or whether the Olympics will inspire a resurgence.

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