KEY POINTS:
The sharp drop in Chinese markets is just a normal correction and not driven by fundamental economic concerns, insists the head of the Shanghai Stock Exchange.
The exchange dropped nearly 9 per cent on Tuesday, triggering a global sell-off in equities, commodities and oil on fears that a dented sharemarket could slow China's economy.
But general manager Zhu Congjiu said at the weekend: "I think the sharp drop was a normal correction by the stockmarket.
"Every year, every day the market goes up and down. I don't think that it was a question of fundamentals," Zhu said on the sidelines of the Chinese People's Political Consultative Conference.
And deputy central bank governor Wu Xiaoling added: "It is totally natural for there to be ups and downs in the process of economic development, and especially in the stockmarket."
In the past, foreign exchange and capital controls have largely insulated the Chinese market from movements in global equities.
"The sell-off [in other markets] was mostly related to their own economies, but the growing integration of the Chinese economy with the global economy means that in future there will be more incidents where Chinese and international stockmarkets will impact each other," Zhu said.
"The domestic market has had a relatively short development and is still a bit fragile," he acknowledged.
The Shanghai Stock Exchange is the larger of mainland China's two exchanges, with market capitalisation of 8.9 trillion yuan (US$1.149 trillion).
Zhu said China's stockmarkets would become more important to the economy as its financial structures changed. Firms would rely on equity markets more to raise capital, weaning themselves away from their current dependence on bank loans.
China's corporate bond market was still in its early stages, and turnover was stunted by Beijing's tight control over the annual volume of new issues.
The exchange was preparing by developing trading products and systems, and improving back-office clearing and settlement, he said.
Meanwhile, China's tax authority has denied speculation that it is planning a capital gains tax on stockmarket earnings.
A State Administration of Taxation official said: "Recently, there's been speculation that the state is considering adjusting the tax-free policy for earnings from stock transactions. This is completely unfounded."
China stopped taxing gains from stock trade in 1994.
