Liu Shan, deputy editor-in-chief of China Business Times, reported on an interview of an anonymous "authoritative insider" on the Chinese economy. People’s Daily published the interview on its front page on May 25. Then on May 26, the Hong Kong based Phoenix Television’s website carried an analysis of the interview.
One of the things that People’s Daily indicated in the interview, according to Liu, is that "China’s bull market is a long term necessity."
People’s Daily‘s interview of the "authoritative insider," when commenting on China’s economic downturn, acknowledged the vital effect of investment on economic growth, "At this stage of China’s development, whether savings can be transferred to investment will be the key to stable economic growth. Given the high rate of household savings, the Chinese people are having trouble getting a sustainable return on assets. At the same time, the real economy and key construction projects lack sufficient funding. More financing channels need be explored to tap into the potential of private capital and to transfer more savings into investment."
It is clear from the "authoritative insider" that the public needs sustainable income from savings and the real economy need financing. The most straight-forward approach is to increase direct financing. This can only be done through the capital market; that is, by directing savings into the pre-IPO market, the equity market, and the bond market so as to generate income based on people’s cash assets. As a result, sustaining a healthy bull market should have been a strategic decision of the central government, rather than a short term expediency.
The central government would also like to achieve the dual effect of stabilizing growth while reducing leverage. Again this approach would effectively increase direct financing. Through direct financing, banks’ loan-deposit ratio could be lowered. We consider that reducing leverage on equity financing by the regulatory authorities is not meant to suppress the equity market. Instead, it is meant to prevent the bubble from growing too fast to lead to a sudden burst. If regulatory measures are appropriate, we expect this round of bull market will last at least three years.
Source: Pheonix TV Online, May 26, 2015