China's Stock Market Bubble Inflating

As If you didn’t know this already, the wall of money being funneled through Chinese banks is creating a massive speculative bubble in shares. The Telegraph reports:

Under orders from the government, China’s banks have flooded the economy with new credit this year, advancing more money in the first six months than the total for 2008.

It is the biggest wave of money since the People’s Republic of China was founded in 1949. The loans are part of a stimulus package to spur domestic investment and consumption and help the economy through the financial crisis.

However, a significant proportion has been diverted into shares and property, with the Shanghai Stock Exchange rising 60pc since January.

Several economists believe a large part of the government’s 4 trillion yuan state aid package has also failed to reach the "real" economy.

Comments

[jimboy:]

Stimulus money being hoarded by the financial sector and stoking up irrational speculative bubbles? Sounds so familiar.
How can so many supposedly capitalist commentators (obviously I'm not referring to the author here) see China as a bright beacon of optimism when they are following the same statist reflationary policies as we are but in an even more heavy-handed, Soviet style. At least their bankers will be able to claim they were only obeying orders when all this stimulus madness ends in the next crisis.

Jun 30 05:20 PM

[Danny Furman:]

Today I was reminded that China is not taxing gains from stock transactions. Talk about bubble inducing!!....

Jun 30 06:58 PM

[Pottermus:]

Well when it comes to screwing up a good economy China can only come in second.

Jun 30 07:17 PM

[Frugal Joe:]

Few of any of their companies made any profits first quarter of 2009 and remainder of year looks bad. For example, ACH had massive losses yet rose 300%.....Bubble is an understatement.

As this bailout money fades, the market will correct to realistic levels and come back down.

Jul 01 12:02 PM

[drpaul1139:]

Eventually we all are going to need to get to the rock bottom of exactly what is occurring by learning what capital is and why it was flawed. In case we forgot, China closed its borders for the second time (great wall being the first) for 31 years so she is new at this capitalist game where many of her technocrats were trained in the west.

In case we all forgot, inflated stocks can do lots of good as currency in the hands of the right CEO’s in acquiring hard global assets on the cheap. So why would you want to tax gains from stock transactions when the number of your public companies and the value of your stock market is substantially less than your benchmark USA competitor?

The USA had better get real with a new economic reality fast or lose to this more determined and nimble competitor!

Please read this article:
www.productequityvalue...

Jul 01 12:35 PM

[D7:]

A bubble is something that is easily popped. This looks more like the containment structure of a nuclear reactor to my eyes. I've been reading Chinese balance sheets almost exclusively for around 8 months now. Everytime I look at a US listed balance sheet I cringe. We'll need some good ole hyperinflation to make those balance sheets look good again.

Jul 01 07:50 PM

[Steven Hansen:]

while we all blinked, china's industrial output increased almost 9% in May.
www.forbes.com/feeds/a...
www.foxbusiness.com/st...-/

bubbles are created when reality and expectations diverge.

Jul 01 08:19 PM

[devassocx:]

Maybe there is a china bubble...but there is a big difference
between china and the U.S.

China has money, the U.S. only has debt...we are beyond broke.

Jul 01 10:14 PM

[derryl:]

Edward wrote, "However, a significant proportion has been diverted into shares and property, with the Shanghai Stock Exchange rising 60pc since January."

Expansionary monetary policy (i.e. encouraging new bank lending) ALWAYS pumps money into real estate and stocks, inflating prices in these asset classes. Maybe there is some spinoff trickle down economic benefit resulting from investors monetizing and spending some of their new asset wealth, maybe there is not. It's not clear that easy money can produce economic growth, but it is clear that it inflates real estate and stock markets.

Jul 02 01:10 AM

[kappa5:]

Remember that China was the only country tightly squeezing credit in 2007 and 2008. Now, they're letting it loose a bit. It's OK. shorterm, I personally subscribe to the thesis of Larry Kantor of Barclay Capital that we're about to see a cyclical inventory rebuild in the US markets, ie autos are selling at a run rate of 10M cars per year, peak was 16-17m, bottom was 8.5M, but auto makers are currently producing at a run rate of 4.5M cars per year, meaning that the US auto industry is going to double production in 2 - 3 months time. Long term if there is a bubble in china its at least 2 years away, or 3. lots can happen in that time. how many people are making 2-3 year bets here?

Jul 02 04:52 AM

[BKLee:]

The Hang Seng has been going down in the last few days.

Have we reached a top?

Jul 22 08:31 PM