COMMENTARY
Commentary: Time for a Stimulus?
Aug. 22, 2008
Christopher Bjorke

Does China's stock market need a lifeline?

After a run of declines plumbing new depths, rumors are circulating that authorities will provide a stimulus package to buoy sagging stocks.

Despite the country's impressive performance as Olympic host over the past two weeks, its markets have not exactly been going for the gold. As a corrective, Beijing is planning a package of 200 billion to 400 billion yuan-nearly $60 billion-to spur market growth, according to a report by JP Morgan's head of research for China. Moves would include tax cuts and aid to capital and housing markets.

But the only help so far have been the rumors' ability to boost optimism rather than anything concrete. Government officials have been dismissive of any speculation of a stimulus.

A Xinhua report quoted a Chinese economist calling the rumors "nonsense." A Peking University economics professor was also quoted saying, "The Chinese economy is not at stake, so I don't think it's necessary to adopt a fiscal stimulus package."

Authorities so far have not stated any intention of adopting any aid measures.

Under control?

The Chinese authorities' penchant for managing is well-known, even manifesting in such absurdities as swapping one child performer for a supposedly cuter one for the opening ceremonies of the Olympic Games.

The past year has seen China attempting to control inflation, the value of the yuan and surging capital inflows. In this case, however, Beijing seems to be reluctant to jump into the game and try to take control of faltering securities markets.

Now the question looms as to whether Asia will remain a much-needed source of growth in the midst of a worldwide slump, and many are looking at China with worries that it will be the latest bubble to burst.

Though it remains to be seen if and how a stimulus package as massive as $58 billion could come about, many investors would not like this to be the moment when Beijing decides to leave things to chance.

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