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Thursday, April 14, 2005

China's stock markets

FT.com :

The fragile banking sector is not the only problem that ought to give Chinese leaders sleepless nights. There are also the country's stock markets. The days are long gone when the rising markets of Shanghai and Shenzhen threatened to eclipse Hong Kong as the listing location of choice for the best Chinese companies. Although a handful of locally listed companies have prospered, the markets as a whole have fallen since 2000. Last year, the Shanghai composite index dropped 15 per cent, making it one of the world's worst performers in spite of Chinese economic growth of 10 per cent. Instead of complementing bank lending by giving companies another way to finance growth, the stock markets weigh on the banks; many brokers are near bankruptcy and thousands of irate retail investors are in debt.
I have been keeping an eye on the Chinese banking sector for a bit now, but I wasn't aware of these weaknesses in the Chinese stock markets. Altogether, this seems to add up to really serious economic trouble not too far down the road. The effects of a bursting of a Chinese Bubble economy will be pretty immense. Obviously China is a major player in world economics and that will effect everyone, but there are other serious factors as well. Revolution in China would become a possibility, and although I hold no love for the Chinese regime, such an event would have at least as much peril as promise. Even if China aviods revolution, other effects of a contracting economy could be worrisome as well. China's largess is all that keeps the North Korean government afloat. If that source were to dry up, the actions of Kim Jong Il could become quite extreme. The Chinese Government might also be required to cash in on currency it's foreign currency reserves (U.S. dollars) and this could distabilize the entire world financial system. On the other hand, China's voracious appitite for oil would probably slacken, lowering the cost of that resource.


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