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In old-style Communist China, the stock market was a potent symbol of evil capitalism and the rise to power of Mao Zedong's hard-line Communists in 1949 brought an end to share-owning capitalism. Stock ownership was a capital offence.
These days, the middle class in the world's fourth-largest economy has gone equities-crazy. First-time investors, ranging from taxi drivers to Buddhist monks, pensioners to students to cash-rich entrepreneurs, are engaged in a frenzy of share buying that has seen prices rise 50 per cent this year and prompted fears of a speculative bubble.
Former US Federal Reserve chairman Alan Greenspan's warning this week that the bubble might burst was therefore a potential disaster for millions of Chinese - particularly as market setbacks following his speech suggest the prophecy could be self-fulfilling. In the first four months of this year, the capital markets siphoned more than 70 billion yuan ($12.6 billion) out of savings accounts in Shanghai alone, according to the People's Bank of China.
Last Wednesday, the Shanghai index passed the 4000-point mark for the first time, and is heading for 5000 at high speed, economists say. Trading volume on that day in Shanghai and China's second smaller exchange in the southern city of Shenzhen exceeded all other markets in Asia, including regional giant Tokyo.
This year's 50 per cent rise in the Shanghai Composite Index comes on top of a 130 per cent increase in 2006. The market shrugged off a one-day drop of nearly 9 per cent on 27 February, a correction blamed for a subsequent sell-off on US and European bourses.
That slide was prompted by investor panic over reports that officials might reimpose a capital gains tax. Although China's security markets are not important in global terms - only 3 per cent of investment comes from overseas - investors seemed to read it as a bellwether for the overall state of the economy.
The media are full of stories of people getting rich quick - wily pensioners and canny schoolkids - prompting comparisons with the happy-go-lucky atmosphere in the US before the 1929 Wall Street Crash.
Fears of a stock market frenzy have prompted officials to warn against irrational exuberance. The prospect of millions of inexperienced retail investors losing everything if the stock market crashed would have politically destabilising effects that the Government is not prepared to risk.
If the Chinese market does crash, it will have a major impact on other markets, depending on what point in the cycle it hits. Economists are wary of calling the market rise a bubble, but they are seeking measures to stop expansion before a bubble emerges.
Jonathan Anderson, chief economist for Asia at UBS in Hong Kong, reckons the Beijing government is close to intervening. "It's true that 'traditional' macro-policy tools like base money constraints or interest rate hikes don't have much impact on the equity market," said Anderson.
"However, unlike the US or other developed markets, the Chinese regulators have no qualms about using direct administrative tools to affect asset markets once they reach a consensus that something needs to be done. We believe that the recent A-share market gains have brought the authorities to that point," he said.
"We already saw the full gamut brought to bear on the property sector, and we expect further use of administrative restrictions on the equity side as well," said Anderson.
People are crowding into shares because there are few other vehicles to invest money in. The Government has clamped down on speculation in the property market to stop housing costs soaring, interest on bonds is low, and most individuals are not allowed to invest abroad. Even though the savings rate in Chinese families is high at up to 40 per cent of incomes, bank accounts pay just 3 per cent interest - less than the rate of inflation.
Many new investors lack basic knowledge of the stock market and the China Securities Regulatory Commission (CSRC) has called on stock exchanges, securities dealers and other authorities to educate investors about the risks of investment. They want institutions to tell investors that shares can go up as well as down, and not to use all their savings or mortgage their apartments to invest in stocks.
Zhou Zhengqing, a top financial adviser on the National People's Congress Standing Committee and a former chairman of the China Securities Regulatory Commission, said share-owning culture was developing well in China, but urged patience.
"Compared with mature markets, China's securities market is still in its infancy. The quality of investors is not high enough. The regulatory system is not mature enough. We must improve risk education for new investors and ensure they have a clear understanding of the risks ahead."
Li Hengren, 65, a retired manager from Beijing, has been hooked on share buying for two years. "Since I retired, I've got a lot of spare time on my hands, so I've been buying stocks to pass the time. I don't have any real opinions about the stock market and I don't even care that much about the result of my investments. I'm just playing for fun," he said.
Li Rong, 22, a graduate student loves to buy shares, and believes there has never been a better time to climb on board. China is booming, after all. She and her boyfriend started investing this year and have invested 800 yuan and 1000 yuan respectively.
"When evaluating the development of the Chinese stock market, I am still very optimistic. Frankly, things are trapped in a state of disorder right now so obviously I'm not planning to make any big deals at the moment until things calm down," she said. But long-term she remains keen.
China's cabinet, the State Council, sought opinions from six prominent economists last month on the soaring stock market, and four said current share valuations were acceptable.
Last week, the Beijing Government said it would raise the amount that Chinese banks are allowed to invest in stocks abroad, possibly diverting some of the money pouring into domestic markets. But economists said the amounts involved would be too small to affect the country's money flows.
Optimists point out the macroeconomic picture in China remains resolutely healthy. The country's trade surplus with the rest of the world has left it with plenty of cash. The economy is expected to expand by around 10 per cent in 2007.
Share prices are trading at 30 to 40 times earnings, an unusually high ratio for many major markets, which some say makes them unrealistic, but earnings growth too is strong.
"The view is that this is not a bubble right now. The market has expanded 200 per cent in the past 24 months but it's still not so expensive that it's a bubble. Maybe there will be a short-term correction but we expect a rising market over the next three years," said Jonathan Anderson.
"What this market really needs is to get better companies, to give better confidence and encourage more companies to list. And there are signs of better companies, national champions, coming to markets."
The Shanghai stock market reopened in 1990 after four decades in the ideological wilderness, but its performance has been mixed since. There was a similar boom in 1999 before prices plunged in 2001, wiping out speculators. There were reports of suicides by indebted investors.
Back then the market was described as being not much different from a casino. Given that gambling remains illegal in China, perhaps the current rush to invest is partially fuelled by an urge for a flutter.
- INDEPENDENT
