By Li Zengxin (www.chinadaily.com.cn)
Updated: 2007-08-13 16:35

Hoping to dampen the effect of higher inflation levels on the stock market, the Xinhua News Agency released an editorial over the weekend, concluding that China's securities market development is healthy and stable. In the first half, trading in the stock market was active and the indices gained new ground, said Xinhua.

By June 30, there were 1,477 listed companies in China, with total market value of 16.623 trillion yuan. Domestic companies raised 187.96 billion yuan in the first half. Daily transaction volume on the two exchanges was 202.7 billion yuan, up 440 percent from last year. Last Thursday, the total market value of all securities listed on the domestic stock market reached 21.147 trillion yuan, higher than last year's gross domestic product.

The strong growth in Chinese stocks has attracted record number of investors. As of last Thursday, there were 111.6 million stock investment accounts in China, including 33.5 million new accounts opened this year. Of the total number, 94.5 million accounts were held by individual A-share investors, including the 21.7 million new accounts opened this year.

CPI in China accelerated to its highest level in more than 10 years as food prices continue to rise, official figures released on Monday showed, raising the possibility of a fourth interest rate hike this year.

CPI, a barometer of inflation, grew 5.6 percent in July, after a 4.4 percent rise the previous month and a 3.2 percent increase over the first six months, the National Bureau of Statistics said in a statement on its website. That is well in excess of the official target of three percent. In July, the rural areas saw a 6.3 percent price increase, compared with 5.3 percent for the urban areas, also according to the bureau.

In a breakdown of July's CPI figures, food prices jumped 15.4 percent, while non-food items rose only 0.9 percent, the statement showed. Among foodstuffs, meat and meat products reported the biggest increase, up 45.2 percent, followed by a 30.6 percent hike in eggs, and a 30.1 percent rise in cooking oil. Grain prices went up 6.0 percent.

Although most of analysts expect further tightening measures by the central bank, some economists are more optimistic. Controlled inflation may stipulate the development of the capital market, they said.

On one hand, under inflation, the real purchasing power of currency declines, making residents more willing to invest, which might bring more capital to the market. On the other, the country needs to enlarge the capital outflow channels, by issuing new stocks or promoting the overseas investment, to address the excessive liquidity problem.

In addition, the stocks in the sectors at the upper stream of the industrial chain with limited supply but affluent demand, such as resources and real estate industries, may earn higher profits, said Li Xianming with Ping An Securities. The steel, coal and non-ferrous metals sectors will also gain from inflation, said an analyst with Galaxy Securities.

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