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Chinese stocks soar

March 30, 2015

China's economy is lumbering at its slowest pace in nearly 25 years, unsettling monetary policy makers. On Monday, Chinese stocks surged to 7-year highs on hints of further stimulus and a massive infrastructure project.

China Schiffbauer
Image: picture alliance/dpa/Yu Fangping

Asian shares swung higher on Monday after China's central bank suggested it would do more to stimulate the world's second-largest economy as it struggles to meet growth targets for the year.

Shares in Hong Kong and Shanghai were up after the governor of the People's Bank of China, Zhou Xiaochuan, said on Sunday that Beijing needed to "be vigilant to see if the disinflation trend will continue."

He added that China could have "room to act" with interest rates and "quantitative measures," leading some analysts to believe further stimulus measures were imminent. The central bank has already slashed interest rates twice since November and loosened regulations on the amount of money lenders must have in reserve.

"The PBOC governor signaled his concern over growth and we think they will do more in terms of stimulus," said Tim Condon, head of Asian research at ING Group.

Hong Kong's benchmark Hang Seng Index rose 1.51 percent, or 368.92 points, to 24,855.12. Shares in Shanghai were up 2.5 percent

China's central bank chief Zhou Xiaochuan
Zhou Xiaochuan, the head of China's central bank, made his comments Sunday at the Boao ForumImage: picture-alliance/dpa/Rolex Dela Pena

Slow growth

The Chinese economy is lumbering at its slowest pace in nearly a quarter of a century, but the country still has huge cash reserves leftover from two decades of virtually uninterrupted growth.

"China's economy is under relatively big downward pressure, and the government is struggling to meet the 7 percent growth target this year," said Alex Kwok, a strategist with China Investment Strategies in Hong Kong.

Anxious over the economy's underperformance, Beijing moved last year to loosen restrictions on money flows from Shanghai to Hong Kong, China's special administrative region that also serves as a gateway to mainland businesses for foreign investors.

That decision has left Shanghai's main index trading at its highest level since the beginning of the global financial crisis in 2008.

Yuan slides in global ranking

That move was also aimed at elevating the yuan - also known as the renminbi - to the status of a global currency used in world payments. It is currently ranked seventh, marking a 1.81 percent share in world payments based on value - down from 2.06 a month before when it ranked fifth.

While Beijing maintains tight control over the value of its currency by limiting inflows and outflows, that control is loosening and China is keen to see the unit used more internationally.

Beijing has also unveiled a massive infrastructure intitiative to build a modern Silk Road to Europe and Africa, a project whose worth is estimated between 300 and 400 billion yuan ($48 billion to $64 billion, 44.5 billion to 59.3 billion euros).

cjc/ng (AFP, Reuters)