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Central bank: US gov't mortgage rescue positive to market stability

(Xinhua)
Updated: 2008-09-09 14:14

China's central bank said on Monday that it believed the US government's mortgage rescue plan would be positive to financial market stability.

"We think these measures will have a positive impact on helping stabilize the financial market and lift up investor confidence," Li Chao, spokesman of the People's Bank of China, the central bank, told Xinhua.

"The US financial market is closely linked to the world economy and the global financial markets. The US government should take its responsibility in maintaining financial market stability and protect investors' interests," Li said.

The US government announced on Sunday that it would take over the two mortgage giants Fannie Mae and Freddie Mac in order to stabilize the financial market.

The rescue plan would enable the Treasury to purchase mortgage-backed securities from the two firms in the open market. It also included the departure of Fannie Chief Executive Daniel Mudd and Freddie Chairman and Chief Executive Richard Syron.

The US government had to take action because a failure of either of the two giants would cause great turmoil in both the US and the global financial markets, said Zhang Ming of the Chinese Academy of Social Sciences, a research organization.

"The US subprime mortgage crisis has not ended. The rescue just indicates the seriousness of the problem, while we have to wait to see its effect," Zhang said.

Buoyed by the rescue move, major global stock markets rallied, except the Shanghai market, which sank to a 21-month low on concerns of economic slowdown.

China's economy, the world's fourth largest, expanded 10.4 percent in the first half of 2008. This was 1.8 percentage points lower than the same period last year, amid a world economic slowdown affected by the US mortgage crisis.

Economists estimated the country's gross domestic product growth rate in 2008 may slow to around 10 percent.