Alan Greenspan on China

Banking on China's boom

Chinese shares have fallen after former US Federal Reserve head Alan Greenspan said its stock market was overvalued and due for a "dramatic contraction". Read original article

• Shanghai Stock Exchange

His remarks had an impact on markets in the US, Europe and Asia, fanning already prevalent fears of a slowdown in China's booming economy.

Signs that Beijing was trying to rein in its startling growth earlier this year led to a temporary fall in shares.

But markets have since risen to levels Mr Greenspan said were "unsustainable".

Market bubble?

The Shanghai Composite Index dropped as much as 1.5% following Mr Greenspan's comments before closing down 22.58 points, or 0.5%, at 4151.13.

He said Chinese markets had risen by 50% since the start of the year and that this trend could not continue for much longer.

Analysts were divided over Mr Greenspan's comments, some fearing a bursting of the stock market bubble but others suggesting his views were overstated.

"The Chinese market is something that Greenspan does not know very well," commented Zhou Fengwu, an analyst at Orient Securities.

"Many Chinese industries have huge potential to expand in coming years and long-term prospects for the market are still very bullish."

Since the beginning of the year, millions of ordinary Chinese citizens have invested in the stock market, many taking money from their savings accounts, where interest rates are relatively low.

The Chinese government recently made it clear it would not intervene to prop up the market.

Other global markets were affected by nervousness over China with Australia's benchmark index falling more than 1% and Japan's main exchange trading flat.

In Europe, markets fell after opening in London, Frankfurt and Paris.