Caution and Reassurance Amidst the Global Financial Crisis

As the U.S. credit crisis ripples through the world economy, Chinese news media and financial institutions alike appear to be taking a calming tone.  From the China Daily:

Investors are reeling after the main stock index took a hit from the US financial turmoil last week to fall below 2000 points for the first time in 22 months.

But analysts said the Wall Street crisis might not have much direct impact on the mainland equity market given its limited investment exposure to global capital markets.

There is some correlation between the recent fall and rise on the Chinese stock market and the unfolding US crisis as world economies become more interdependent[…]But external turmoil only sparks psychological panic since the domestic market has limited global exposure, [said Liu Jing, a professor at the Cheung Kong Graduate School of Business].  “The asymmetry between demand and supply in financing and investing is mostly to blame for the turbulence,” Liu said.

The CEO of AIG General China, a subsidiary of the New York-based insurance giant AIG, also emphasized the company’s immunity to the Wall Street turmoil in statements published by the Shanghai Daily:

No job losses, more growth and ample capital – the new president and chief executive officer of AIG General Insurance Co China highlighted these points at his first media briefing yesterday in Shanghai.

John J. Carey, president and CEO of AIG General China, reinforced the stability of the company despite concerns over liquidity surrounding AIG in New York.

Carey said the company’s solvency is “well above” regulatory minimum.

A run on the Bank of East Asia (BEA) in Hong Kong indicated that Chinese citizens were not so immune to panic.  The China Daily reports:

Panicked depositors have been waiting outside the bank’s branches in Hong Kong since Wednesday after mobile phone text messages claiming the bank was suffering from financial difficulties began to do the rounds.

According to the same article, however, the run was but a short-lived reaction to false rumors:

Mainland depositors seemed to have shrugged off the “malicious rumor” that Bank of East Asia is in trouble, but analysts say the turmoil is a reminder to local lenders that a perceived lack of communication can trigger chaos at a time of financial uncertainties.

“There is no sign of irregular cash withdrawal in our mainland branches,” said Sun Minjie, executive vice-president of the bank’s mainland subsidiary, at a news conference in Shanghai yesterday. “Still, we have increased temporary liquidity just in case.”

Xinhua also reports reassurances from bank regulators concerning BEA’s solvency:

The Bank of East Asia (China) Ltd. has conducted stable operations on the mainland for several years and its current fundamentals are sound, a banking regulator said on Thursday.

“The China Banking Regulatory Commission supports the judgments of the Bank of East Asia (BEA) by the Monetary Authority of Hong Kong,” Yang Liping, deputy director of the agency’s Banking Supervision Department III, said in a statement.

See also from the China Daily: Depositors calm after HK bank run

Chinese officials’ general confidence in the health of the country’s financial system has been tempered by admonishments for Chinese banks to exercise caution.  From Xinhua:

Chinese banks should guard against liquidity risks, market risks and operation risks in response to the U.S. subprime crisis, Liu Mingkang, chairman of the China Banking Regulatory Commission, said on Thursday.

The shareholding commercial lenders also need to actively avert credit risks brought about by the economic slow-down, Liu told a bankers’ meeting in Beijing.

He urged banks to boost corporate governance and internal control, closely watch the major developments in the global financial sphere and improve the ability to predict and avert international risks.

In a more active attempt to cushion the impact of downturn in the global financial system, China’s government has also approved new rules which allow margin trading and short selling on the Chinese stock market.  According to MarketWatch:

China has approved a plan to allow margin trading and short selling on its stock markets, according to a media report Friday.

The introduction of the trading rules was timed to limit the impact on market stability, the report cited the official as saying.

[…]The government is backing the plan in the hope it will boost trading without inciting further declines in the market.