Chinese market rout nearing an end

China’s stock-market rout that erased $5 trillion (€4.48tn) in value is close to ending, according to the nation’s central bank governor.

With the yuan’s exchange rate versus the dollar close to stabilising and a stock-market correction almost done, China’s financial markets are expected to be more stable, governor Zhou Xiaochuan said.

His comments were made in a statement on the bank’s website after a meeting by finance ministers and central bankers from the Group of 20 nations in Ankara.

The Shanghai Composite Index has tumbled 39% since June 12, when the gauge reached its highest level in more than seven years as mainland investors borrowed record amounts of funds to buy equities.

China’s shock devaluation of the yuan in August rattled world markets and sparked exchange-rate declines in emerging economies.

Volatility in China’s stock markets is nearing its end, Zhu Jun, director-general in the People’s Bank of China’s international department, said, after G20 finance chiefs flagged concerns about potential global spillovers.

Jun said the currency move wasn’t an attempt to gain an advantage of other exporters and that the government expected the market turbulence to be nearly over. “We think it’s pretty close to the end,” Zhu said.

“To some extent the leverage in the market has been decreased substantially and we think there would be no systemic risk.”

The Chinese government’s intervention has prevented a free-fall in the market and systemic risk, Zhou said in the statement.

The leverage ratio has clearly dropped and the impact on the real economy is limited, Zhou said.

Zhou reiterated that China’s economic fundamentals are substantially unchanged, and that there is no basis for long-term yuan depreciation.

The country’s determination to deepen market reforms have not changed, he said.

The G20 leaders and finance ministers also pledged to “refrain from competitive devaluations”, the first time the G-20 has used such language since 2013.

The last time the G-20 issued such a firm statement against currency wars, Japan was in the spotlight as its campaign of monetary stimulus pushed the yen to its lowest level against the dollar in about five years.

Chinese finance minister Lou Jiwei told the meeting he expects the country’s economy to grow at about 7% for the next four or five years.

Zhou told his counterparts that his country had had to deal with the bursting of a stock market bubble as he described policy makers’ plans.

He said he saw no reason for the yuan to decline further in the long run.

China’s slowdown comes as the Federal Reserve is considering raising US interest rates for the first time in nine years.

Vice chairman Stanley Fischer explained the arguments for and against an early increase in US interest rates, Spanish economy minister Luis de Guindos said.

“The Fed has not raised interest rates in such a long time, that it should really do it for good, not give it a try and then have to come back,” International Monetary Fund chief Christine Lagarde said at a press conference in Ankara.


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