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Chinanews, Beijing, June 1 – The World Bank issued the China Economic Quarterly Report on Wednesday. The report uses 20% of its pages to discuss the Chinese stock market. According to the report, if the Chinese stock market drops substantially, it might dampen Chinese people’s enthusiasm which they just had for the Chinese capital market. Secondly1, if some people, especially retired2 people and the low-income group, suffer a great financial loss, it might lead to their sudden change of mood which might further cause some policy risks.
The World Bank report says that since China lacks sufficient investing tools, investors3 have shifted their money to the stock market, which has been the main cause to push up stock prices. In order to solve this problem, China should provide more investing channels to alleviate4 the pressure of the soaring stock market index. The new investing tools include new IPOs, new issue of share offerings for listed companies, and the issue of corporate5 bonds. At present, China is trying to attract large state-owned enterprises that have listed abroad to come back to issue stocks. However, the World Bank says, at present the share prices of state enterprises are far lower than the public think they are worth. In the first two months of this year, the average share price of new listed stocks rose by 70% more than their issuing price on their first trading day. The share price of the China CITIC Bank almost doubled its issuing price during the first trading day and the share price of the China Life Insurance Company grew more than 100% on the first trading day. In China, the value of new shares has been substantially underestimated, a phenomenon that has not occurred in other global securities markets apart from China. In Hong Kong stock market, during the first few months of this year, the difference between new shares’ issuing price and their listed price during the first trading day was only 14%, while in Japan, such price difference reached 40%. In the United States, such price difference fell somewhere between 10%-20%. Despite this, individual investors in China did not benefit from such low prices, as most of the new shares were bought by institutional investors that usually made large gains during the first trading day without any difficulty, says the World Bank in the report.
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