| The indexes of China's Shanghai and Shenzhen A share stock market have been rising to a historic height since 2005. The majority of Chinese economists and research institutions regard the abundant monetary liquidity as an important power that pushed the stock price during this period. They say Chinese stock markets will remain trading at a high price level until the ascending trend of liquidity ends.Based on the traditional literature, we analyze the ascending liquidity's affecting mechanism on stock price. By analyzing the data from 1998 to 2007, we find there is an obvious relativity between abundant liquidity and higher stock return.We also analyze the recent condition and future trend of domestic monetary liquidity. We think it's likely that the ascending trend of liquidity will exist for a long time . The reason is that it's caused by China's high deposit rate and excess liquidity of international financial market until 2007.Therefore we shall take measures in time to prevent the ascending liquidity of causing great turbulence on domestic stock market and avoid serious assets quality problems and economy falling. The paper offers the following countermeasures:Firstly, in short term, control the abundant liquidity with monetary policy, reduce the massive trade surplus with fiscal policy; provide enough stock to the stock markets; strengthen supervision on stock market.Secondly, in a middle term, optimize the capital market; open the stock markets to domestic investors; rise efficiency of financial system; control the process of opening capital market to foreign investors, fully utilize abundant liquidity , avoid financial risk.Finally, in a long term ,we should strive to transform the economic growth method; gradually make domestic consumption the main power of economic growth; then we can change the abundant liquidity situation caused by international trade imbalance and avoid negative influence on domestic capital market, ensure the stability of national economy. |
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