August 11,2008

The Sweet, Bitter Olympic Moment for China's Market, Economy

By CSC staff

China will have the Olympics on the brain for the next two weeks. People poring over live broadcasts of ping-pong, archery and synchronized swimming can not be expected to keep their minds on their work. Under such circumstances, how can anybody be surprised at the plummeting stock market?

China’s A-share market has fallen to this round’s lowest point since the beginning of the Games. Investors?interest seems to be distracted by all the hoopla, adding to the market’s depression. On the day of the opening ceremony, the market slumped by 4.47%, down to 2600 or so.

Investors?concerns over tight policies continue. According to the latest figures, China’s July PPI saw two-digit growth, at 10%, for the first time, a record high in the last 12 years. The day these figures were released, the stock market opened with a further  5.21% slump, dropping as low as 2470.07 points.

The viewership rate of the opening ceremony was something else. International Olympic Committee spokeswoman Giselle Davies said the Chinese audience who watched the opening ceremonies of the Beijing Olympic Games totaled a staggering 840 million.

According to the figures released by CMS Research on August 9, 68.8% of China’s TV population watched the opening ceremony, a high since China started viewership surveys. Figures from AGB Nielsen show over 90% of Chinese families watched the TV broadcast of the opening ceremony.

And that was only the beginning. The Olympic influence is spreading across the land. When gold metal competitions become fierce, people drop everything to watch the Games all day. Some ask for leave from their companies, some surreptitiously surf the net during working hours looking for the latest news, and some just disappear when things heat up. Will Michael Phelps break the record for total gold medals taken in one Games? How far can the Chinese basketball team go this time with mighty Yao Ming anchoring the center in the company of a couple of other Chinese NBA cohorts? Chinese office conversations swirl with these topics. No work is so urgent it cannot be left aside for the time being. While heart beats speed up, productivity levels tank.

But it’s not just Games Mania that is slowing things down.

Measures to ensure air quality and security will be carried out until at least the end of the Games. Shougang Group, a Beijng-based steel company, is reducing its production capacity by 70% July-September. A number of large-sized infrastructure construction projects have also been stalled. To ensure smooth operation of communication networks, the government has banned Chinese telecom operators from conducting any expansion projects, although now is the key moment for construction of 3G networks before they are officially launched.

According to figures from CCTV, China’s national TV station, within a month before the opening of the Olympics, the number of trucks coming to Beijing from other provinces dropped by 60%. Due to the government’s limiting of freight transportation, big companies have been forced to close their Beijing plants. This situation will last until after the Paralympic Games end on September 20.

"Although the Olympic Games will not much affect China’s economy long-term, more and more evidence shows it will have a negative impact in the short run," says a research report from Goldman Sachs economists Liang Hong and Song Yu.

They predict production and consumption will slow down in August and September due to a list of limits, and will see a rebound in October when the Games are over. "So right now it is hard to judge the economic situation without considering these limits."

As many departments of the central government are now busy with the Olympic Games, investors will not divert their interest back to the stock market at least until the Games are over. Then, their confidence in the market will depend on whether policies relieving their concerns will be released after the all the celebration ends.


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