(no subject)

[randomness]

I missed this post when it came out. The Chinese stock markets are really booming. It's like 1929! or 1999.

Deutsche Bank, quoted in FT Alphaville:

Bubble watchers point out median earnings multiples for Chinese technology stocks are twice US peer valuations at their dot.com peak. More worrying perhaps is a health-goods-from-deer-antlers producer on 70 times, the seamless underwear manufacturer on 90 times or those school uniform and ketchup makers on 330 times!

From the same article in Alphaville:

It seems everyone in the country is racing to open a brokerage account – 1.67m new accounts in the latest week, according to the China Securities Depository and Clearing Co. That sounds a lot, although it is growth of only about 1 per cent a week in the total of new accounts: China, remember is big.

They go on to make some comparisons between the current state of the Shenzhen and Shanghai markets and that of the Russell 2000.

"Past performance is no guarantee", etc. I wonder when the music's going to stop?

Comments

[r-ness.livejournal.com]

That's certainly the best case scenario from the point of view of the Chinese government!

That said, I think that requires a level of financial and social engineering I don't know that the Chinese authorities are actually capable of. Outsiders tend to ascribe a level of competence and control by the Chinese authorities that they simply don't have. Shooting their own kids was a matter of losing control, and a fine example of sudden change they weren't able to deal with.

The parallel to the best case scenario you posit with the 1989 events is that the kids protest, sit in for a while, the authorities wait them out, make them unpopular with the residents, who have to deal with the fact that there's an Occupy movement in the middle of town, and the protestors quietly go away having failed to change anything. A few people go to jail, no one dies, and everyone forgets about the protest. No sudden changes.

They were incapable of pulling that off. (Although I note that the Hong Kong authorities, with 25 years of hindsight, basically managed to pull it off. But they're much more skilled at public relations than the Chinese authorities were, because for one thing they actually hold elections, though of a rather emasculated, gerrymandered kind. Similarly I think the Hong Kong authorities are much better at handling a financial crash, since they actually have experience with them. But as anyone in China will tell you, Hong Kong is a problem smaller by more than two orders of magnitude. Its solutions don't scale, they keep saying.)

I agree that the Chinese government will lean on foreigners in the ways you say. But that's just normal practice in China: lean on the foreigners. The problem is that this bubble is much bigger than a bunch of foreign companies and their contracts, and can't be solved just by screwing foreigners. If only it were that easy.

Leaning on the rich, powerful Chinese that are involved in all this is a very delicate, very messy can of worms, not least because these rich, powerful Chinese are usually part of the government. Some of them will have to lose. Which ones end up losing is the very delicate, very messy bit. They won't go quietly, and they have real power. Power to derail corruption investigations, launch opposing ones, and generally fight back.

The next post from the FT pretty much ended with how the government fails to have any good idea of what it's doing. As with the rest of analyses on China and its government that describe it as a single entity I feel like this is a misleading oversimplification, but it does capture some of the lack of clarity.

Finally, it's not that the Chinese have a violent allergy to sudden change. There are over a billion Chinese. Some like change, some don't. It's that the current government has an allergy to any change, sudden or gradual, that might put them out of a job. It appears to blunder into sudden change more often than is comfortable. It's just good at the "I meant to do that" thing cats are known for.

[drwex]

the Hong Kong authorities, with 25 years of hindsight, basically managed to pull it off

My point exactly. We used to mock the Chinese declarations that they could censor the entire Internet, too. It's true that Hong Kong is smaller than China, but it's not smaller than the number of players in the market (I guesstimate).

I understand the point FT is trying to make, but I think it's unwise to underestimate the ability of Beijing to socially engineer solutions.

[r-ness.livejournal.com]

We used to mock the Chinese declarations that they could censor the entire Internet, too. It's true that Hong Kong is smaller than China, but it's not smaller than the number of players in the market (I guesstimate).

You're factually incorrect on both of those points. For the first point, have a look at chinasmack.com sometime. For the second point the linked report from the China Securities Depository and Clearing Co. shows more brokerage accounts in each of the Shanghai and Shenzhen exchanges than there are people in Hong Kong.

But no matter. We'll see how it all comes out by and by.

I think it's unwise to underestimate the ability of Beijing to socially engineer solutions.

I think the Chinese authorities can do many things, including mitigate the effects of a market crash in ways Western governments can't. What they can't do is prevent a market crash itself. which is what I (and I think the FT) are actually talking about. On that score I think you're talking about a completely different issue than I am.

As I said, we'll see.