Capital raised from the recent stock market rally and the resumption of share sales will not have an adverse impact on government efforts to curb the investment boom, according to analysts.

 

The Chinese stock market, mired in a five-year slump, has staged an impressive rebound since the beginning of this year, gaining nearly 30 percent.

 

China lifted a one-year ban on share sales on Monday, the latest government move to boost the stock market.

 

The benchmark Shanghai composite index gained 1.0 percent to close at 1,545.69 points yesterday, its highest closing level since June 2, 2004.

 

The resumption of share sales and the stock market rally has led some to worry that public companies may use the capital they raise from the market to invest in fixed assets, countering current efforts to curb the investment boom.

 

"The possibility exists that some capital will flow from the stock market and then end up in fixed investment," said Zhu Jianfang, chief macroeconomics analyst at CITIC China Securities.

 

"It is likely some listed companies will take advantage of the rebounding stock market and share sales to raise more capital to invest as borrowing costs become higher following the central bank's lending rate rise," Zhu said.

 

"But such an impact is unlikely to offset the effect that the monetary tightening policy would have on checking investment growth," he added.

 

As the majority of investment funds are from bank loans, capital from the stock market that could end up being invested in factories or other fixed asset facilities would not have a significant impact on overall investment growth if lending is curbed, Zhu said.

 

The economy grew 10.2 percent in the first quarter this year, prompting concerns about an overheated economy.

 

Fixed-asset investment jumped by 27.7 percent in the first quarter, up from the previous year's 25.7 percent.

 

China's money supply, or M2, a broad measure of cash in circulation and deposits, climbed 18.8 percent on a year-on-year basis to 31.1 trillion yuan (US$3.9 trillion) at the end of March, largely driven by the rapid growth of lending and a swelling trade surplus.

 

Outstanding local currency loans in all financial institutions reached 20.6 trillion yuan (US$2.6 trillion) during the same period, up 14.7 percent on a yearly basis.

 

The government has taken a slew of measures to fine-tune the economy.

 

The People's Bank of China, the central bank, last month raised the benchmark lending rate by 27 base point to 5.85 percent in a bid to curb rapid lending growth.

 

Tighter controls on investment approval and land supply, although they may not be effective in the long run, may have an impact in checking investment growth, the World Bank said yesterday.

 

"Given China's stage in the reform process, such controls still have an impact, especially in the short term," the World Bank said in its latest economic update on China yesterday.

 

(China Daily May 11, 2006)