Taiwan and China’s Markets

 The picture in China

Markets across Asia are fighting inflation, particularly China and its domestic market.  For the last three months the producer-price inflation was over 8% and consumer price inflation was at 7.7%.  This caused authorities to increase the banks reserve rates by 1%.

This is the fifth time this year that China has kept more money in reserve than what they lent.  In pace with the global market, Shanghai’s composite index fell 14%.  This records a fall below 3000, a 50% marketing fall from its peak.

Further decreases are predicted.  The lightening up of monetary policies squeezes profit margins and exports slow down with the economy.  Actual Chinese export growth was 10%I n April, 15% in December, compared to 25% in December of 2006.  When prices were climbing it did not help that companies acted irresponsibly with each other’s shares.

Government Interference

The main issue is the government.  For example, Beijing raised its share-trading to lighten the load briefly and then turned around and cut in back down.  Beijing has imposed limits on buying new shares and forcing managers not to sell too fast.  Investors basically lay in wait for the government to move, according to The Wall Street Journal.   This has actually enticed volatile mob like behavior among traders.  Investors may totally pull out now that the government has failed to keep the market above 3000.

Raising interest rates will lure more foreign funds into the economy.  There is little room for China to maneuver.  Holding the issuance of shares would hurt the long-term development of the market.  Capital Economics’ states “how ineffectual government intervention has become over the medium term”.

China and Taiwan

China’s riding markets have aided Taiwan to become the best performing Asian market this year.  Its market climbed 2.5% in terms of the dollar.  As the new Taiwanese President strengthens relations with China, this should induce a rise in the Chinese economy, according to CLSA’s Peter Sutton.

CLSA’s Christopher Wood states, the “incremental progress on the economic front, not a definitive one off deal, ending the 60 year dispute” between the China mainland and Taiwan.  The limits set on Taiwan’s firms’ investments in China will soon be addressed.  Taiwan’s economy is affected by exports and domestic demand,  with the regions anxiety related to the higher food and energy prices, and concern with their US consumers.  Taiwan does have the links with China this year that promises progress.