Chinese Stock Markets Are in the Middle of an ‘Unprecedented’ Slide

[Donatello]

Obviously my experience. The China stock market is turning out to be a fraud. Prices of equities are completely manipulated by the government and the ultimate grease comes from government approved rising margin levels (you can use your house as of last week) and direct government-ordered buying. Many IPO' are occuring....so the debt/margin driven investments go to the IPO's at inflated prices just to pay off other debt. Not my kind of market.China cannot let go of its totalitarian nature and their market is a cr@p shoot.I think there is a lack of understanding of what a "stock market" actually is on the part of Chinese authorities. See, there are these things called valuation models that are based on discounting the expected future cash flows to arrive at the intrinsic value of the company. Infusing capital into the market for no reason won't change any inputs into the model - the companies' cash flows, growth rates, or discount rates. If the index is worth 3000 then no amount of capital infusion will change that.

If people who had invested in such stocks start to sell them back on the market........who will pay them up? The company which was overly valued?

 

[Brickwall]

Article is very well written, I just hope China economy crash should have minimum effect on other Asian Economies, it should not trigger another Asian Financial Crisis

 

[peacekeeper]

In 2001, the value of total Chinese exports was $266 billion. By 2010, exports had risen to $1,577 trillion, increasing at an astounding annual growth rate of 50% on average. Since 2010, Chinese export growth has slowed to an average of 10% a year.

$1,577 trillion; Is it correct?

 

[Aepsilons]

I for one am against war but excuse me, old chap, but I don't really see an advantage for China in his analysis. Let us cherish the hope however that Xi and the CPC will play things right even in rough times.

Hi @rugering --- Dr. Pei makes a realistic, grounded analysis approach by referring to incidents in China's history , national crises , as prerequisite to resolute and all-encompassing reforms. Most veteran observers of China would agree that crisis is a pre-requisite for genuine reform. This economic downturn will most likely rejuvenate the energy within some parts of the CCP to reform the corporate tax code, reform corporate law, reform the regulatory procedures in the market, which were largely ignored by prior administrations --- something that Xi has tried to reform but to no avail. I think this current crisis should be used as catalyst for much needed reforms.

So, in that regard, I think Dr. Pei was wise in giving this lecture. I'm sure the learned, mature, and pragmatic Chinese minds will see some truth to his analysis.

Rather than just be immediately labeled as 'Hanjian' without taking the time of interpreting and digesting his wise words.

 

[Spectre]

Hi @rugering --- Dr. Pei makes a realistic, grounded analysis approach by referring to incidents in China's history , national crises , as prerequisite to resolute and all-encompassing reforms. Most veteran observers of China would agree that crisis is a pre-requisite for genuine reform. This economic downturn will most likely rejuvenate the energy within some parts of the CCP to reform the corporate tax code, reform corporate law, reform the regulatory procedures in the market, which were largely ignored by prior administrations --- something that Xi has tried to reform but to no avail. I think this current crisis should be used as catalyst for much needed reforms.

So, in that regard, I think Dr. Pei was wise in giving this lecture. I'm sure the learned, mature, and pragmatic Chinese minds will see some truth to his analysis.

Rather than just be immediately labeled as 'Hanjian' without taking the time of interpreting and digesting his wise words.

Excellent article, I have been following the works of Dr. Pei since my B-School days and his knowledge of Chinese Trade and Financial ecosystem is impressive.

He often presents the fair picture of Chinese economy with warts and all.

The advantage of centralized economy is that reforms can be implemented quickly without the necessary greasing of political wheels often necessary in democratic countries.

Saving based economy of China is another blessing in disguise as these savings can be utilized to mitigate the effects of deflationary pressures.

The important point to remember is that growth at any cost just leads to boom and bust periods, I just hope that Chinese Govt is savvy enough to realize that and would pursue sustainable economics.

It would be interesting to see how long the bear period in stock market lasts and whether the major losers were retail investors or institutional ones.

@Nihonjin 1051 hold your horses for a week or so, before investing. Trends and fundamental analysis shows that stocks are still over-valued. Spent my weekend preparing a report on this thing. The supports are at 4500 and 3000, 4500 is breached so expect the index to settle at around 3000.

 

[Neutron]

In equites if they move illogicaly up the are supposed to move illogicaly down

 

[Aepsilons]

Excellent article, I have been following the works of Dr. Pei since my B-School days and his knowledge of Chinese Trade and Financial ecosystem is impressive.

He often presents the fair picture of Chinese economy with warts and all.

The advantage of centralized economy is that reforms can be implemented quickly without the necessary greasing of political wheels often necessary in democratic countries.

Saving based economy of China is another blessing in disguise as these savings can be utilized to mitigate the effects of deflationary pressures.

The important point to remember is that growth at any cost just leads to boom and bust periods, I just hope that Chinese Govt is savvy enough to realize that and would pursue sustainable economics.

It would be interesting to see how long the bear period in stock market lasts and whether the major losers were retail investors or institutional ones.

@Nihonjin 1051 hold your horses for a week or so, before investing. Trends and fundamental analysis shows that stocks are still over-valued. Spent my weekend preparing a report on this thing. The supports are at 4500 and 3000, 4500 is breached so expect the index to settle at around 3000.

Excellent input @Spectre ~~!!

 

[William Hung]

Well, to be honest im glad i didn't go into real estate as what some of my friends did. I've got some friends who bought condo properties in Ningbo , i don't know how the property value will be affected, but yea, for some of them, they put in over ¥ 60 million (that's roughly over 500k USD). So you can imagine...the worry.




Its tempting not to panic, lol. From my portolio's end --- looks like the pharmaceuticals sector isn't affected. But yea....worried? Yes, i am.

Be very careful bro!!! In the next few months, I don’t want to read a story in this section about a “Japanese man bought a bull in a Chinese market, raised it up and fattened for years and now realized he got a bear in his hand”.

 

[Aepsilons]

Be very careful bro!!! In the next few months, I don’t want to read a story in this section about a “Japanese man bought a bull in a Chinese market, raised it up and fattened for years and now realized he got a bear in his hand”.

Its just crazy, my friend. All the horror stories that the 'western journalists' were saying about a potential Chinese stock market crash really is....happening.

The arrogance of some of our Chinese comrades here in pushing aside such warnings as "Western fear mongering" came to literally bite them in the butt. Unfortunately.

This just reminds me of the Japanese Bubble Burst back in the early 1990s. It started like this......

 

[William Hung]

Its just crazy, my friend. All the horror stories that the 'western journalists' were saying about a potential Chinese stock market crash really is....happening.

The arrogance of some of our Chinese comrades here in pushing aside such warnings as "Western fear mongering" came to literally bite them in the butt. Unfortunately.

This just reminds me of the Japanese Bubble Burst back in the early 1990s. It started like this......

Yes, my friend. Usually we would think, well it doesn’t really matter if the average Chinese is blinded with their nationalism, as long as the CCP leadership understand what is going (and they do), then that’s all it matter because the CCP is the decision maker, the real player. BUT in the stock market, it is important for the average Chinese to know what is really going on and can’t just blindly be swallowed by blind nationalism or govt propaganda, because the average Chinese are the players in the stock market.

This is something I fear the most in the current condition. The Chinese stock market can recover, but the CCP method of shaping public opinion through blind nationalism and propaganda can turn this into a big problem, methinks. Correct?

I don’t really know though. I’ll just pray for their recovery.

[HASHTAG]#Pray4China[/HASHTAG]

 

[Aepsilons]

Yes, my friend. Usually we would think, well it doesn’t really matter if the average Chinese is blinded with their nationalism, as long as the CCP leadership understand what is going (and they do), then that’s all it matter because the CCP is the decision maker, the real player. BUT in the stock market, it is important for the average Chinese to know what is really going on and can’t just blindly be swallowed by blind nationalism or govt propaganda, because the average Chinese are the players in the stock market.

This is something I fear the most in the current condition. The Chinese stock market can recover, but the CCP method of shaping public opinion through blind nationalism and propaganda can turn this into a big problem, methinks. Correct?

I don’t really know though. I’ll just pray for their recovery.

[HASHTAG]#Pray4China[/HASHTAG]

Agreed


*Claps*

_/\_




[HASHTAG]#pray4china[/HASHTAG]

 

[tranquilium]

I doubt that, my friend. He gives an interesting analysis that others fail to report, he gives an all encompassing analysis.

He is a graduate of Shanghai International Studies University, graduated Summa Cum Laude; he earned his Masters at Harvard University , Magna Cum Laude. Earned his Ph.D at Pittsburgh University, Magna Cum Laude.

He is a distinguished and well published academic , an associate professor at Claremont College, and had served as a distinguished Visiting Professor in Japan.

He has a wealth of 'technical' knowledge pertaining to his trade: Political Science, Economics.



That sector is booming, so i encourage you to research first before you open a portfolio. Right now, the areas that are growing and have long term dividends are the medical sector. So much money there.

Well, let me share a little work place story with you. Just last week, I was talking with my college on an topic regarding to high impedance fault detection and we start to talk about reflection coefficient in cables. Specifically, the physics theory behind it. Now, myself is a Ph.D candidate and my college is a post-doc. By any standard, both of us would be considered to be very knowledgeable on the subject, but at the end of discussion it turned out both of us still have plenty of questions and misunderstandings on the subject, so I spent the week reading up material on the subject.

How does this relates to this post? Well, a lot of people can be "very knowledgeable", but that does not mean their theory is correct.

Economic prediction, or as I like to call it----"prediction of massive scale non-linear system based on limited information and under certain psychological perspective constraints", is something that is hit and miss even for the best and brightest in the field. Merely knowledgeable is not sufficient, especially some of the information that is wrong.

For example, Mr. Pei's argument of "As we now know, the credit-funded stimulus program merely created another bubble -- the real estate and investment bubble that has sharply increased China's overall indebtedness." This is a "general" understand of the 2008 Chinese stimulus program----meaning if you pull aside an individual that has the knowledge of the trade and some general understanding of China, that will be answer from him.

I think you can see what is the problem with this. To truly understand, you need specific knowledge, down to the last detail, not general knowledge. In this case, the specific detail of Chinese stimulus program is something less often discussed because "collections of economic development plans in regarding to handling global financial crisis, post-disaster relief, rebuild schedule and changing Chinese demographic-economic structure" is an okay topic for academic paper and probably putting a number of readers to sleep just by reading it. It is not something you use as a banging news title like "4,000,000,000,000 RMB monetary stimulus".

A rudimentary explanation of what the Chinese 2008 economic plan in response to the financial crisis can be read here:

四万亿计划_百度百科

Ten category is covered:
1. Increase reserve housing available. In response to changing urbanization condition in China where large population migration to cities stresses the housing availability.
2. Increase fundamental infrastructure development in rural region.
3. Increase public infrastructure construction such as rail road (HSR is part of this), highway and airports.
4. Increase healthcare and education, especially in middle and western part of China.
5. Reinforce environmental protection infrastructure such as waste water, garbage recycle and treatment, re-forestation and energy saving
6. Increase high tech infrastructure. Transitioning into high tech development and support 3rd sector development.
7. Increase rebuild effort for earthquake affected region (China experience a major earthquake in 2008)
8. Increase rural region income. Low income protection and insurance. Agricultural subsidiary and level-price crop intake for the next year to protect farmers.
9. Tax reform in industries
10. Increase financial industry support to economic growth----focusing on loan reform to tech industry, as well as restructure ad re-organization in medium and small agricultural industries and concerning migrating population from rural to city side.

The project budgetary locations: (Total amount 4 trillion RMB or roughly 590 billion USD)

1. Low income housing RMB 400 billion (10%)
2. Rural infrastructure RMB 370 billion (9.25%)
3. Public infrastructure (HSR, highway, hydro, airport) RMB 1500 Billion (37.5%)
4. Healthcare, education, culture development 150 billion (3.75%)
5. Environmental infrastructure development RMB 210 billion (5.25%)
6. Tech innovation and industry restructuring RMB370 billion (9.25%)
7. Earthquake rebuild RMB 1000 billion (25%)

So the "stimulus" really isn't a western style monetary stimulus. It is more of a number of large scale projects which intends to fill the necessities in response to a shifting demographic and economic condition. Linking it to a real estate bubble actually doesn't make much sense once you go into the details instead of just get a "general understanding".

I also have a number of issues with other parts of the article, such as Chinese real estate's relationship with shifting demographics, as well as the comparison with 1991 Japan where the situation is complete different, but I have spent long enough time on this article. I won't dignify the "conclusion" with an argument. The article is based on so much information that only passable at a glance, but breakdown completely when asked for details. The conclusion also jump from an academic discussion to politics and we all know what politics does to academic integrity.

 

[Amember]

When the thing comes crashing down it will affect all sectors. The Chinese economy is halting. The stimulus is not working

you seem to know a lot about China economy,
may I ask when the crash you talked about will be happened? at least maybe you can tell in what year, so we can all be prepared.

 

[Economic superpower]

@Hu Songshan

False headline as $2.7 trillion lost in value, not $3.7 trillion.

Correct the headline please.

 

[Spectre]

Excellent input @Spectre ~~!!

Greek vote in less than 13 hours, If Greek votes oxi (no) to EU Bailout then lets just it would be very interesting. I expect a major setback to world economy and EU in particular and Greek exit from EU is certain.

Monday is gonna see a huge flight to quality (US bonds) when you combine this with investors pulling out of China