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Market Watch
Business> Market Watch
UPDATED: July 17, 2007 NO.29 JUL.19, 2007
MARKET WATCH NO.29 2007
Many people withdrew their insurance to invest in the stock market, as insurance watchdog statistics showed
 
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TO THE POINT: The Chinese stock market showed signs of recovery and the new stock investors have been rushing in. Many people withdrew their insurance to invest in the stock market, as insurance watchdog statistics showed. Meanwhile, the Chinese trade surplus grew to a new record high in June, along with the yuan appreciation. From August 1, foreign partners exploring Chinese offshore crude oil will be subject to export tariffs if they export the oil. China agreed to open more airports to U.S. passengers and businesses including six central provinces. The further expansion of flights will bring more tourists to both the United States and China.

By LIU YUNYUN 

Rectifying Stock Market

After continuous drops in June, the benchmark Shanghai Composite Index has so far performed moderately. In spite of sharp ups and downs during trading, the stock market, overall, is fluctuating within bearable ranges from 3,800 to 3,900 points.

A number of government moves, like the issuance of special treasury bonds, and interest rate hike expectations, hurt the investors' confidence in the stock market, leading to a stampede with millions of investors losing money.

Observing the stock panic, the Chinese Government again took measures to calm the mood, which helped give the Shanghai Composite Index a "V" turn to 3,781 points from the lowest point of 3,563 on July 6.

In other news, "Daitoudage 777," a godfather of stock market speculation, was arrested by police. His real name was found to be Wang Xiujie. Wang opened a blog on Sina.com.cn and taught people how to make money on the stock market. His blog was the hottest-30 million hits-of all blogs in China.

After gaining trust from millions of stock investors, Wang required those who wanted to get advice from him to pay a membership fee. Some earned money, while some lost. But there is still no concrete evidence to prove Wang broke the laws. Wang argued it was part of his attempt to open a private equity company.

The stock market is now lingering around 3,800-3,900 points and 4,000 points level is believed to be risky.

Insurance Premium Slumps

The insurance industry was hit hard by the stock market mania in developed cities like Beijing and Shanghai, where people have increasing awareness of investment. But in central and west China, the insurance premium grew steadily and people are less willing to withdraw insurance to invest in the stock market.

China Insurance Regulatory Commission statistics show that insurance premiums in the first five months (excluding March) decreased month by month. Life insurance takes the largest proportion in all insurances, but the life insurance premium decreased to 31.5 billion yuan in May from 41.6 billion yuan in January.

The insurance industry has grown inversely proportional to the stock market, which was breaking record highs since January this year.

But overall, insurance premiums increased in the first five months, if comparing with the same period last year. The premium growth rate in the five months was 22.02 percent, 14.79 percent, 28.99 percent, 27.78 percent and 18.12 percent, respectively.

Statistics show the investment-linked insurance soared 177 percent in the first quarter compared with the same time a year before.

Yuan Going Strong

The Chinese currency yuan has risen 7.1 percent in value since it was announced that the fixed exchange rate of 8.11 yuan against one U.S. dollar would be dropped two years ago.

On July 11, the middle price of yuan exchange rate hit 7.5712 against the U.S. dollar, the 50th new record high this year.

The stronger yuan is driven by both international and domestic factors. The U.S. dollar has been weakening in the international market. Meanwhile, the Chinese consumer price index escalated so far this year, leading to wide expectation of another interest rate hike.

Cao Yuanzheng, chief economist of Bank of China International Ltd., said that the yuan has been internationalized. "For instance, the yuan is already regarded as local currency in Hong Kong," Cao said.

The Chinese currency is gaining ground in neighboring countries, many of which are gradually recognizing yuan as their clearing and trading currency, Cao contended.

Trade Surplus Record

The Chinese trade surplus, amid complaints from its major trading partners, jumped to a record high of $26.91 billion in June, soaring up an astonishing 85.5 percent compared with the same month last year.

Due to the large-scale elimination and cutting of export tax rebates, Chinese exporters rushed to ship their products before the new tax rebate policy took effect on July 1. Total exports in June amounted to $103.27 billion, growing 27.1 percent from the year before, while the total import in June hit $76.36 billion, up 14.2 percent.

On June 19, the Chinese Government announced it would cut or eliminate export tax rebates for 2,831 commodities starting July 1, in an effort to "rein in overheated export growth and ease frictions between China and its trading partners."

Analysts believe a turning point will occur in the next few months, as thousands of commodities will lose their export

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