Chinese Economics Thread

[AssassinsMace]

An important portion of the stock market game is confidence. No confidence and stocks go down. But also confidence can create overconfidence and therefore bubbles meaning stocks are over-valued. You see that in a lot of non-Chinese stocks. The Chinese stock market is especially more about this because people treat it like gambling. Why do you think the Western media portrays any downturn in the Chinese stock market as the end of China? Are they looking at the fundamentals? No. They want no one to have confidence in China. It's all political. It's no different from when the KJ-200 crashed or a Baidu satellite failed. Outsiders were falsely wailing that China couldn't recover from this. The whole point of the false wailing was to instill no confidence so you don't proceed and continue but instead just give up. They don't want China to have EW aircraft or their own GPS satellite system that threatens their dominance. They aren't losing money because the Chinese stock market isn't open to everyone especially to foreigners. People act like the stock goes down, that money disappears into nothing. No, someone sold the stock and has that money. That money is still in China. Not good still but better than foreigners taking all that money which is why the critics want financial reform in China to their liking so they can take everyone else's money to save themselves like what happened in 2008. Just like how also you read about all this debt accumulated by Chinese regional governments and companies. That's all inside. It's not like how you see what's happening in the EU where outsiders loaned that money to Greece. Or how about the US issues government bonds to which countries like China and Japan buy so the government can spend more than their means which is why there's a deficit every year and debt accumulated. Some that argue it's insignificance point to that the American public is the majority buyer of those bonds not foreign entities. And China can say the same. Better to have these investors irresponsible with their money getting bitten now so it'll teach them a little lesson. Also if the government is searching for speculators that cause the sell-off, at least China can punish them appropriately unlike if they turned out to be a foreigner.

 

[Brumby]

On the flip side, the Chinese economy isn't really affected by its stock market, so it will keep trucking along at 4-7% (depending on who you want to believe) YoY growth.

That is not necessarily true. We just don't know at this stage. Typically, the stock market leads the economy by 12 to 18 months by traditional Western markets. In other words, the smart money exit while the general public continues to ride on the exuberance of the economy until the musical chair stops. At the terminal stage, effectively the economy is already in trouble even though the stock market continues to rise. At the final stage of the move (which we have seen), it will be a sharp rise driven by pure speculative reason rather than it being supported by the fundamentals of the economy. I think there are two indicators to watch - excess capacity compounded by over leveraging in debt to build capacity.

 

[SamuraiBlue]

They aren't losing money because the Chinese stock market isn't open to everyone especially to foreigners. People act like the stock goes down, that money disappears into nothing. No, someone sold the stock and has that money. That money is still in China.

No the money had dissapeared since sales of stock is reactive meaning they sell during the fall in which case some would sell at lower prices then they had bought it.
Since PRC had prohibited shorts the loss is completely through actual sales. The most frightening point would be as I had previous posted majority is borrowed money by individual investors.

 

[Brumby]

The best part is looking back just a few weeks and we can find titles like this:

Chinese Stocks Head for Biggest Two-Day Rebound Since 2008

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Swings within a market is its basic characteristic. It is a reason why we have terms like rebound, rally and corrections. The fundamental question is which phase and direction is the Shanghai market in? In a bear environment, it falls faster than it rises and any rally/rebound is effectively a correction and when the correction is done, the falls will continue.

 

[Blitzo]

No the money had dissapeared since sales of stock is reactive meaning they sell during the fall in which case some would sell at lower prices then they had bought it.
Since PRC had prohibited shorts the loss is completely through actual sales. The most frightening point would be as I had previous posted majority is borrowed money by individual investors.

I think the most illuminating part from the article in thatprevious post is this:

Risky, poorly regulated financial investments have proliferated in China, creating the danger of a meltdown that spreads beyond the stock market to the broader Chinese economy. Yet China's stock market isn't as big, relative to the Chinese economy, as in developed countries, so the panic might not spread to the economy as a whole....

It's a literal self contradiction in the same paragraph, on arguably the most important factor that everyone is watching out for.
"X might happen but X might also not..." a very astute analysis if I've ever seen one.

 

[broadsword]

Swings within a market is its basic characteristic. It is a reason why we have terms like rebound, rally and corrections. The fundamental question is which phase and direction is the Shanghai market in? In a bear environment, it falls faster than it rises and any rally/rebound is effectively a correction and when the correction is done, the falls will continue.

I am not bearish, from now till end of the year. I don't see lower highs and lower lows, but a rebound in say, another three weeks from the current correction. It will be a choppy market.

 

[Brumby]

I think the most illuminating part from the article in thatprevious post is this:


It's a literal self contradiction in the same paragraph, on arguably the most important factor that everyone is watching out for.
"X might happen but X might also not..." a very astute analysis if I've ever seen one.

It is self contradictory if both the events are mutually exclusive but they are not necessarily the case as the writer is attempting to point out.

 

[Blackstone]

That is not necessarily true. We just don't know at this stage. Typically, the stock market leads the economy by 12 to 18 months by traditional Western markets. In other words, the smart money exit while the general public continues to ride on the exuberance of the economy until the musical chair stops. At the terminal stage, effectively the economy is already in trouble even though the stock market continues to rise. At the final stage of the move (which we have seen), it will be a sharp rise driven by pure speculative reason rather than it being supported by the fundamentals of the economy. I think there are two indicators to watch - excess capacity compounded by over leveraging in debt to build capacity.

The traditional take on stock markets don't necessarily apply to China, because it is so new and so poorly regulated. Also, the 125% rise from the start of the year had little to do with economic expansions and more with SoE and big investors making unsound investments. While some pensioners and little guys took it in the shorts, most of loses were by SoEs. That's the reason the IMF said China's stock crash will have little effect on the country's GDP growth. Another thing to remember is while SoEs took the bloodbath, they also gained ~125% before the crash of ~40%. For the year, they're still up by around 70%, so I cry purple Koolaid tears for those poor little plutocrats that lost $3 trillion.

 

[Blackstone]

I am not bearish, from now till end of the year. I don't see lower highs and lower lows, but a rebound in say, another three weeks from the current correction. It will be a choppy market.

Bill Bishop, publisher of Sinocism newsletter, said the Shanghai Index floor CCP set for government intervention is 3,500 points.

 

[shen]

Chinese stock market is a tiny percentage of the economy and overall capital market compare to more mature economies. Most large companies raise the majority of their capital from bank loans rather than through the stock market. Even if the market collapse, the national economy is not likely to be affected.
Chinese stock market is really just a way for people to gamble. It's rise and fall are totally divorced from the national economy. 85% of the market are owned by small investors compare to I think 25% for the US? although on average, only about 15% of the family wealth is invested in stocks. but that's enough for the government to feel it needs to step in.