Former US Federal Reserve chairman Alan Greenspan
has said that he feared a "dramatic contraction"
in Chinese stocks leading to a fall in the Shanghai
Composite Index, China''s main stock index, by as much
as 1.5 per cent before closing down 22.58 points, or
0.5 per cent, at 4151.13.
remarks had an impact on other global markets over China
with Australia''s benchmark index falling more than 1
per cent and Japan''s Nikkei remaining flat. In Europe,
markets fell in London, Frankfurt and Paris in morning
said in a meeting via teleconference that the recent
boom in Chinese stocks could not last, saying, "It
is clearly unsustainable. There''s going to be a dramatic
contraction at some point," and qualified it by
saying that the global economy may be able to shrug
off a drop in prices.
Shanghai index had almost tripled in 2006 and has risen
56 per cent so far this year.
also said a correction could cause problems for Chinese
investors'' personal wealth. Since the beginning of the
year, millions of ordinary Chinese have invested in
the stock market, often withdrawing from low interest
the Chinese government recently made it clear it would
not intervene to prop up the market, some analysts have
speculated that the government could be tempted to dip
into its reserves to bail out to avoid social unrest.
former Fed chief identified cheap Chinese imports as
one of the elements stoking world growth and the knock-on
effects on lower inflation and rates. "In the last
five years, the world as a whole is a growing faster
than at any time in the world''s history," he said.
"It can''t last and it won''t last because it''s a
"We will get major declines in certain levels but
it need not feed back significantly to levels of employment
or the real economy," he said.
this month, Greenspan reiterated that he believed there
was a one-third chance the US economy, the world''s largest,
would slip into recession this year. On Wednesday, he
said the United States had no problem financing its
current account deficit.