As the world celebrates the first day of the year of the Pig, Xinhua News Agency, the Chinese communist regime's official media, published the article "Two Great Stock Market Crashes in History" on its homepage, along with the picture of "The Crash", the cover of the November 2, 1987 edition of Time Magazine. Some economists in China think that Xinhua's recounting of the two U.S. stock market disasters of 1929 and 1987 was an indirect attempt by the communist regime to cool down the overheated stock market through reminding stock traders of pessimistic times.
A more direct measure employed by the regime in an effort to cool the stock market is tightening the monetary policy. On January 16, 2007, the People's Bank of China increased the reserve requirement ratio for banks by 0.5 percentage points. This reserve ratio hike, the fifth of its kind since last July and the second this year, would compel mainland lenders to put aside 10 percent of their deposits as reserves, up from the current 9.5 percent.
People's Bank's continual rise in required reserves met with market expectations though its announcement of the adjustment on the eve of the Chinese New Year was beyond all expectations. Yet, the policy became effective on February 25, quicker than the previous increases in deposit reserve ratio. Since the policy took affect on a Sunday when banks are closed, it was estimated to take 160 billion yuan (US$20.67 billion) out of the banking pool. It is believed that the move came as a result of excess liquidity in the banking system generated by China's mounting trade surplus along with a strong inflow of foreign direct investment.
Prior to raising the required deposit reserve ratio, the China Securities Regulatory Committee announced new rules and tightened conditions over 1,400 post-IPO (Initial Public Offering) companies. Consequently, stock markets across the nation dropped.
Yet, traders were still hooked on the bullish trends, and the stock market again returned to record highs prior to the Chinese New Year and became even hotter.
Some experts believed Xinhua's publication was to promote a pessimistic feel for the first trading day of the year of the Pig so stock market traders would not be optimistically banking on bullish signs, while the regime could facilitate its cooling measure for the macro-economic controls.
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