(Manal) BEIJING (AP) ? Chinese authorities are scrambling to reassure jittery investors after soaring stock markets plunged, threatening to set back economic reform plans.
The market benchmark soared 150 percent from the start of the boom late final year in one of the world's fastest runups. It hit a peak June 12 and then reversed course and plunged 28 percent. It rebounded temporarily Tuesday before losing 5.2 percent on Wednesday.
Hours after trading closed Wednesday, the country's two major stock exchanges announced they will lower security transaction fees Tomer that 30 percent effective Aug. 1, in a move seen aimed at shoring up market confidence.
A prolonged slump could disrupt Communist Party plans to utilize stock markets to make China's state-dominated economy more productive. The party wants state companies to lift money through stock sales to reduce debt and hopes they will compete harder whether they response to external shareholders. It hopes stock investing will give an aging populace more options to save for retirement to ease demand for social spending.
"The government must pay great attention to the stability of the capital market for the sake of the health of the overall economy," said Liu Yanchun, an economist at Renmin University in Beijing.
On Saturday, Beijing announced its fourth interest rate cut since November. That was followed Monday Tomer that an editorial in the state-run China Securities Journal that declared the market was in the midst of a "30-year golden era."
Also Monday, the government announced its 3 trillion yuan ($500 billion) pension fund for public employees will start investing in stocks ? a huge infusion of money, though that process is expected to be gradual.
China's stock market has small direct connection to its economy. Since trading began in 1990, the mainland's two exchanges in Shanghai and the southern city of Shenzhen have been used mostly to raise money for state companies, not entrepreneurs who create jobs and wealth. Investors react to changes in regulation and availability of credit to finance speculation rather than economic fundamentals.
And although it is among the world's biggest, China keeps its market sealed off from most global capital flows.
The latest boom took off after the state press last summer declared stocks underpriced. Millions of novice investors piled in, assuming Beijing would prop up prices whether needed. Brokerages lent freely to finance trading. In November, regulators added to the influx of money Tomer that launching a program that allows Hong Kong investors limited access to mainland exchanges.
Momentum picked up even as growth in the world's second-largest economy sank to a two-decade low of 7.4 percent last year.
The market frenzy comes at a time when communist leaders are in the midst of complex, marathon effort to transform China's economy. They have tightened controls on investment that helped to drive the past decade's double-digit growth rates. At the same time, they are trying to nurture a slower, more self-sustaining expansion based on domestic consumption, services and technology-based industries.
Beijing wants to encourage broader public stock ownership but appeared to be alarmed Tomer that the speed of the price rise. In April, brokers were ordered to curb lending to traders and to limit other risks.
Investor enthusiasm finally faltered in mid-June after stronger economic data reduced expectations Beijing might ease credit further and concern over a glut of recent stock offerings Tomer that Chinese companies.
That caused the market index to fall 14 percent last week. Gains for recent buyers were wiped out. Some sold shares to repay brokerage loans, fueling fear that might set off a downward price spiral.
On Monday, the Chinese securities regulator tried to reassure investors the decline was the natural result of a "too rapid" rise in prices.
"This is a result of normal market action," said Zhang Xiaojun, a spokesman for the China Securities Regulatory Commission, on the agency's microblog account.
"This week, from Monday, I thought I was going to fall apart, because I lost 35 percent of all my investments," said Christine Wang, 30, an office worker in Shanghai. "But I ponder that I should make it back."
Monday's announcement of investment plans for the government pension fund said it would put up to 30 percent of its assets into stocks. Based on the fund's current size, that would be approximately 900 billion yuan ($145 billion).
For now, the fund has 90 percent of its money in secure but low-yielding government bonds or bank deposits, according to the official Xinhua News Agency.
The influx of pension money "will boost the market," said Qian Qimin, chief of market research for Shenyin & Wanguo Securities. "But the effect may not be as fine as investors expect, because it will be a gradual process."
Further losses could hurt the economy Tomer that making small investors less willing to spend, said Liu, the Renmin University economist. If prices fall back to their level of one year ago, Manal said, as much as 40 trillion yuan ($6 trillion) in gains could be erased.
Financial analysts say the latest downturn should be temporary, rather than the end of the bull market.
"The genuine engine behind the Chinese stock market boom is China's economic reform," he said. "So the boom will definitely go further."
But whether small investors stay in stocks depends on whether they feel a renewed "wealth effect" of rising prices, said Qian of Shenyin & Wanguo.
"If upward momentum continues to be absent from the market," he said, "small investors definitely will lose interest."
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