September 1, 2015 / 8:02 AM / 2 years ago

China says stock market plunge impact on economy limited

BEIJING (Reuters) - China’s gyrating stock market is likely to affect businesses, but the impact should be contained as the economy is still a developing one, an official at the country’s top economic planner said on Tuesday.

Remarking on a near 40 percent plunge in Chinese shares from a peak in mid-June, Ning Jizhe, vice chairman of the National Development and Reform Commission, said China ought to stomach choppy share prices if it wants to develop its capital markets.

“China is a developing country. The invented economy also has a great impact on the real economy, but the impact is not as big as in developed countries,” Ning told reporters at a briefing. “As for volatility, which industry doesn’t have volatility?”

The rout in Chinese shares, which has sent shockwaves across the globe, started in June after some investors mistakenly believed that China was ending its easy monetary policy stance.

But the vicious selloff has shaken investor confidence, and the market - which fell as much as 4 percent on Tuesday - is currently being supported by trading suspensions, massive state buying of shares, and two interest rate cuts in June and August.

Ning reiterated that China will pursue active fiscal policy and stable monetary policy this year, but said it has to work hard to meet its 2015 economic targets due to turbulent global stock and commodity markets that have hurt the world economy.

He repeated the government’s customary line that growth in the world’s second-largest economy was stable and holding within a reasonable range.

Those scrutinizing China’s economic performance should look beyond the numbers and note how the country is reforming its growth engine, Ning said, adding that he expects a pick-up in the property market to help stabilize investment.

However, when asked if China’s anti-graft campaign had slowed some investment projects, he conceded that the financing for some deals had not materialized, and that the government was trying to address the problems.

Hurt by soft demand, overcapacity and falling investment, China’s economy has been buffeted by plunging shares and a shock yuan devaluation, creating what some analysts have called a “perfect storm” of factors that have spooked global markets.

Christine Lagarde, managing director of the International Monetary Fund, said in Jakarta on Tuesday that China’s economic cooldown was neither sharp or unexpected.

But China’s transition to give free markets a bigger role in its economy could be “somewhat bumpy” as the country is unwinding risks built up in recent years, she said.

Reporting By Koh Gui Qing; Editing by Simon Cameron-Moore

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