China’s stock market advances after 8 straight losing days

Rob Schmitz May 31, 2011
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China’s stock market advances after 8 straight losing days

Rob Schmitz May 31, 2011
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BOB MOON: Like that old Chinese proverb says: After eight straight losing days, there may be reason for concern. OK, so I made that “proverb” up. But there was a sigh of relief today as China’s stock market snapped an eight-day losing streak. Last time Chinese stocks were down so long was 1994. Investors are worried China’s central bank is about to raise interest rates again.

Our China Bureau Chief Rob Schmitz explains it’s tough medicine.


ROB SCHMITZ: A slumping property market, higher interest rates, and some new roadblocks to real estate development.

Andrew Batson of the economic research firm Dragonomics says that’s music to the ears of China’s central planners.

ANDREW BATSON: They’ve had very high inflation for the last several months, there’s a lot of worries about a property market bubble and overheating, so the focus of government policy for the last few months has been basically to cool things down, so we’re starting to see the effects of that right now.

For years, China’s rising consumer class has continued to buy more and more stuff. That spurred prices to go up dangerously fast-more than 5 percent just last month.

So the folks who run China’s central bank have been working overtime to find ways to cool this demand. They’ve raised the cost of loans and reduced the amount of bank credit that flows out into the economy.

In the short run, Batson says, this may slow business for U.S. companies because fewer consumers will be buying. The good news, he says, all those moves will reduce inflation in the long run, and that will mean more Chinese consumers buying more stuff and some of that stuff will be sold by U.S. companies.

In Shanghai, I’m Rob Schmitz, for Marketplace.

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