6 ms·

China’s stock market bubble: A goring concern

91 points by dons 11y ago

deleted 11y ago
[deleted]
kenny-log_ins 11y ago
I find myself noticing that a lot of the solutions that The Economist proposes are very similar - opening markets, decreasing regulation - make everything more "liberal". They always make compelling arguments for their suggestions but I also find myself wondering whether they ever argue for any alternative
- funkylexoo 11y ago
  If you instinctively and intellectually adhere to a system of values, why would you advocate something that goes against it?
  - bildung 11y ago
    > If you instinctively and intellectually adhere to a system of values, why would you advocate something that goes against it? Because less market regulation is not a value by itself, its a policy, a means to an end. My interpretation of kenny-log_ins' post was the hidden accusation that the Economist doesn't properly seperate the two, and thus falls victim to ideology.
  - lmm 11y ago
    Any sane ideologue will admit it's a guide rather than an absolute rule; you might be on the right because you believe free-market approaches are generally better, or on the left because you believe tax-and-spend approaches are generally better, but if you're analysing specific cases rather than just touting your ideology then you should spot at least some exceptions.
- mrec 11y ago
  The Economist has always been "The answer is free markets! What was the question?". I always find it a reassuring read, in the sense that well-written, well-researched, persuasive articles that I disagree with are a sign that I haven't been completely engulfed by my own little information bubble, but take it with a pinch of salt.
  - dublinclontarf 11y ago
    Actually having lived in China for a significant period of time I can say that the answer is to remove capital controls on Chinese citizens and allow them to invest anywhere else. This will deflate the Chinese market bubble(and property bubble) almost immediately, you'll see this happen however when pigs are flying to the moon.
    - pjc50 11y ago
      The answer to what question? The policy has to be to defer the bubble collapse as much as possible in hope of the mythical "soft landing". Far more than western countries they depend on continuous economic growth as the tradeoff for lack of political freedom.
      - tim333 11y ago
        Deferring bubble collapses doesn't work so good as they just pop later and bigger.
        spacehunt 11y ago
        Problem for the next Party leader.
    - eli_gottlieb 11y ago
      So China should export its capital glut to the rest of the world, which already suffers a capital glut?
  - jazzyk 11y ago
- eyko 11y ago
  As a short term solution, I would say they're probably right. However, sane advice would be to look for a sustainable alternative. I guess it's just because they have a liberal bias, but in any case I can't see The Economist proposing a slower, yet more sustainable growth. "After double-digit growth for much of the past decade, sales have slumped" - you don't say... or perhaps they expect that rate of growth to continue without end? Yes, it was a bubble.
  - wjnc 11y ago
    -Against fuel subsidies in Indonesia [1] -.. and in general [2] -For carbon tax [3] (all imho: ) They are traditional liberal, and / but with a realist approach to economics. Massive market failures exist and need work. Market failures more often originate in government, than that new market failures need more government. [1] http://www.economist.com/news/asia/21638179-jokowi-abandons-wasteful-fuel-subsidies-fiscal-prospects-brighten-good-scrap http://www.economist.com/news/asia/21638179-jokowi-abandons-... [2] http://www.economist.com/news/leaders/21639501-fall-price-oil-and-gas-provides-once-generation-opportunity-fix-bad http://www.economist.com/news/leaders/21639501-fall-price-oi... [3] http://www.economist.com/news/leaders/21580146-world-will-one-day-adopt-carbon-taxbut-only-after-exhausting-all-alternatives-tepid http://www.economist.com/news/leaders/21580146-world-will-on...
- davidw 11y ago
  They also advocate for things like gun control and health care reform in the US. I believe they've also advocated things like a carbon tax, as they give credence to the scientific consensus on global warming. They also tend to be fairly 'practical' in their support for candidates. I recall some years ago when they absolutely laid into Silvio Berlusconi and recommended the left-wing candidate despite Berlusconi being, in theory at least, the more 'business friendly' candidate. They rightly argued that he was mostly just friendly to his own businesses. So, yes, they are 'liberal' in the European sense, but not necessarily 'libertarian' in the US sense. Edit: their about page is informative: http://www.economist.com/help/about-us#About_Economistcom http://www.economist.com/help/about-us#About_Economistcom
  - danmaz74 11y ago
    Berlusconi was really the most "business friendly" candidate. His own business, that is :D
    - tzakrajs 11y ago
      That's exactly the comment you are replying to.
  - crdoconnor 11y ago
    >I recall some years ago when they absolutely laid into Silvio Berlusconi and recommended the left-wing candidate despite Berlusconi being, in theory at least, the more 'business friendly' candidate. They rightly argued that he was mostly just friendly to his own businesses. I seem to recall they were rather taken with the unelected technocrat Mario Monti, as prime minister.
    - davidw 11y ago
      > I seem to recall they were rather taken with the unelected technocrat Mario Monti, as prime minister. Yes, he - in theory - was in tune with their values. He did manage to accomplish a few things like liberalizing store opening hours, and this: http://blog.therealitaly.com/2015/04/16/fixing-italy-a-little-bit-at-a-time/ http://blog.therealitaly.com/2015/04/16/fixing-italy-a-littl... but didn't really accomplish as much as many had hoped. The fact that he was unelected is part and parcel of how the system works in Italy, as the prime minister is not directly elected. For that matter, Matteo Renzi wasn't either.
- caoilte 11y ago
  Yeah. :-). You should read the Economics of the Colonial Cringe. I think you'd enjoy it. http://www.theatlantic.com/technology/archive/1991/10/-quot-the-economics-of-the-colonial-cringe-quot-about-the-economist-magazine-washington-post-1991/7415/ http://www.theatlantic.com/technology/archive/1991/10/-quot-...
- pinaceae 11y ago
  they also advocated for same-sex marriage - in 1996. their liberal, in the classic sense. their stance on various wars is often questionable though. supported the second iraq invasion.
kcorbitt 11y ago
> Global investors are not buying into the mania: the shares of companies listed in both Hong Kong and Shanghai are now 30% more expensive in the latter. I'm quite confused by this statement -- if the shares on both exchanges are equivalent, this seems like an insanely good arbitrage opportunity. Are China's capital controls really tight enough to prevent Chinese nationals from finding a way to invest in the same stocks on the HK index for a 30% discount? And even if they are, I'm not clear why the Chinese government would do this -- it's like charging a 30% premium to domestic investors just for being Chinese.
- pjc50 11y ago
  Are China's capital controls really tight enough to prevent Chinese nationals from finding a way to invest in the same stocks on the HK index for a 30% discount? The answer has to be yes - otherwise, as you say, it would be arbitraged away. It's still a bit leaky, but when it leaks it seems that investors much prefer to diversify into ownership of overseas property. Why capital controls? Because China is more nationalist than globalist. It's also critical to keeping the industrial policy working by forcing local re-investment and preventing capital flight. Chinese growth depends on cheap money, which in turn relies on forcing people not to charge a risk premium for the percieved confiscation and rule-of-law risks in China.
  - hga 11y ago
    China follows a nasty policy of financial repression (https://en.wikipedia.org/wiki/Financial_repression https://en.wikipedia.org/wiki/Financial_repression) in which the interests of "the people" is an afterthought at best. ADDED: combine that with little to no social safety net, and the One Child policy which most? often results in 4 grandparents supported by 2 children supported by 1 grandchild (not quite so bad in the rural areas, but still inadequate, especially if a child dies), and you have the worst social planning mess outside of outright genocide (which the PRC did a lot of through the Cultural Revolution) that I'm aware of.
    - virmundi 11y ago
      Wow. I didn't know that they really lacked the social safety net. So maybe now that they are more industrialized the could have a real communist revolution and see what happens?
amelius 11y ago
If companies are worth more than what they make in revenue, stock-holders should be penalized for illegal gambling.
- mcdougle 11y ago
  Ok, I'll bite. Why illegal gambling? Wouldn't it be legal gambling, if anything, since it's condoned (and encouraged) by the government?
smaili 11y ago
> Kemian Wood Industry, which used to boast of the quality of its composite floorboards, took radical steps to deal with the downturn. It switched its focus to online gaming and changed its name. > A hotel group rebranded itself as a high-speed rail company, a fireworks maker as a peer-to-peer lender and a ceramics specialist as a clean-energy group. I've heard of pivoting, but this goes way beyond that. Doing a complete 180 on what you're producing/selling and changing your name? That's both fascinating and scary at the same time. As a customer, how do you know whether the company you're buying from will still be around?
- pcrh 11y ago
  It makes you wonder what the determinants of success are for a Chinese business. Would you trust cars made by Nike, if they suddenly started making them, or a airline run by the Hilton Group?
  - ngd 11y ago
    How about an airline run my a record label?
    - supercanuck 11y ago
      or spaceships.
      - timlovelee 11y ago
        LG makes Shampoo
        meatysnapper 11y ago
        Giant industrial conglomerates are a totally different case. We are talking about a normal, single-product/field company switching to something totally unrelated. That's totally insane.
        vardump 11y ago
kordless 11y ago
I may be completely off about this, but isn't it the term suppose to be "going concern"? I thought I had discovered a phrase I didn't know, but then I did a Google search and the only occurance is this article. That said, if China's market goes under it may be pretty gory. :)
- phyalow 11y ago
  Play on words... Extremely "bullish" market, lofty valuations, irrational exuberance, people are going to end up gored when some of these companies (300431, 283.HK, 566.HK etc) end up in dirt and no longer qualify as "going concerns".
- AdmiralAsshat 11y ago
  I assumed it was "a growing concern". But I can't ding the submitter for copying verbatim from the article title.
- EliRivers 11y ago
  It's a pun, playing on the well known phrase "going concern". It's a bull market, and people are going to get gored when it stops (which of course is something bad a bull can do to people), which is a concern. A "going concern" is some kind of viable enterprise, so by casting it as a "goring concern" they're alluding to the fact that the stock bubble does not look like a viable enterprise, as well as getting in a reference to bull markets and giving their prognosis. Puntastic.
- primo44 11y ago
  While we're on the subject, when you say "isn't the term suppose to be", you actually need to say "isn't the term supposed to be". I've noticed that people have started pronouncing this wrong (they now say "suppoes" rather than "suppozed") and that's spread into the written form. Similarly, people are also replacing the correct "used to" with "use to".
  - deciplex 11y ago
    "Use to" can be correct, e.g. "Didn't we use to go to the same school?" The tense of "use" should match the tense of the predicate.
dmix 11y ago
> A shift to monetary easing and fiscal stimulus—and expectations of more to come—help explain why the rally began. But the longer it continues, the more it looks like irrational exuberance. The spark that started it all? This is crazy: > Credit Suisse estimates that 6-9% of China’s market capitalisation is funded by credit, nearly five times the average in the rich world.
- phyalow 11y ago
  Not to bad if you stand back and consider the entire US economy reflated only on the bullshit of the Fed!

91 points by dons 11y ago

deleted 11y ago

[deleted]

I find myself noticing that a lot of the solutions that The Economist proposes are very similar - opening markets, decreasing regulation - make everything more "liberal". They always make compelling arguments for their suggestions but I also find myself wondering whether they ever argue for any alternative

funkylexoo 11y ago
If you instinctively and intellectually adhere to a system of values, why would you advocate something that goes against it?
- bildung 11y ago
  > If you instinctively and intellectually adhere to a system of values, why would you advocate something that goes against it? Because less market regulation is not a value by itself, its a policy, a means to an end. My interpretation of kenny-log_ins' post was the hidden accusation that the Economist doesn't properly seperate the two, and thus falls victim to ideology.
- lmm 11y ago
  Any sane ideologue will admit it's a guide rather than an absolute rule; you might be on the right because you believe free-market approaches are generally better, or on the left because you believe tax-and-spend approaches are generally better, but if you're analysing specific cases rather than just touting your ideology then you should spot at least some exceptions.
mrec 11y ago
The Economist has always been "The answer is free markets! What was the question?". I always find it a reassuring read, in the sense that well-written, well-researched, persuasive articles that I disagree with are a sign that I haven't been completely engulfed by my own little information bubble, but take it with a pinch of salt.
- dublinclontarf 11y ago
  Actually having lived in China for a significant period of time I can say that the answer is to remove capital controls on Chinese citizens and allow them to invest anywhere else. This will deflate the Chinese market bubble(and property bubble) almost immediately, you'll see this happen however when pigs are flying to the moon.
  - pjc50 11y ago
    The answer to what question? The policy has to be to defer the bubble collapse as much as possible in hope of the mythical "soft landing". Far more than western countries they depend on continuous economic growth as the tradeoff for lack of political freedom.
    - tim333 11y ago
      Deferring bubble collapses doesn't work so good as they just pop later and bigger.
      - spacehunt 11y ago
        Problem for the next Party leader.
  - eli_gottlieb 11y ago
    So China should export its capital glut to the rest of the world, which already suffers a capital glut?
- jazzyk 11y ago
eyko 11y ago
As a short term solution, I would say they're probably right. However, sane advice would be to look for a sustainable alternative. I guess it's just because they have a liberal bias, but in any case I can't see The Economist proposing a slower, yet more sustainable growth. "After double-digit growth for much of the past decade, sales have slumped" - you don't say... or perhaps they expect that rate of growth to continue without end? Yes, it was a bubble.
- wjnc 11y ago
  -Against fuel subsidies in Indonesia [1] -.. and in general [2] -For carbon tax [3] (all imho: ) They are traditional liberal, and / but with a realist approach to economics. Massive market failures exist and need work. Market failures more often originate in government, than that new market failures need more government. [1] http://www.economist.com/news/asia/21638179-jokowi-abandons-wasteful-fuel-subsidies-fiscal-prospects-brighten-good-scrap http://www.economist.com/news/asia/21638179-jokowi-abandons-... [2] http://www.economist.com/news/leaders/21639501-fall-price-oil-and-gas-provides-once-generation-opportunity-fix-bad http://www.economist.com/news/leaders/21639501-fall-price-oi... [3] http://www.economist.com/news/leaders/21580146-world-will-one-day-adopt-carbon-taxbut-only-after-exhausting-all-alternatives-tepid http://www.economist.com/news/leaders/21580146-world-will-on...
davidw 11y ago
They also advocate for things like gun control and health care reform in the US. I believe they've also advocated things like a carbon tax, as they give credence to the scientific consensus on global warming. They also tend to be fairly 'practical' in their support for candidates. I recall some years ago when they absolutely laid into Silvio Berlusconi and recommended the left-wing candidate despite Berlusconi being, in theory at least, the more 'business friendly' candidate. They rightly argued that he was mostly just friendly to his own businesses. So, yes, they are 'liberal' in the European sense, but not necessarily 'libertarian' in the US sense. Edit: their about page is informative: http://www.economist.com/help/about-us#About_Economistcom http://www.economist.com/help/about-us#About_Economistcom
- danmaz74 11y ago
  Berlusconi was really the most "business friendly" candidate. His own business, that is :D
  - tzakrajs 11y ago
    That's exactly the comment you are replying to.
- crdoconnor 11y ago
  >I recall some years ago when they absolutely laid into Silvio Berlusconi and recommended the left-wing candidate despite Berlusconi being, in theory at least, the more 'business friendly' candidate. They rightly argued that he was mostly just friendly to his own businesses. I seem to recall they were rather taken with the unelected technocrat Mario Monti, as prime minister.
  - davidw 11y ago
    > I seem to recall they were rather taken with the unelected technocrat Mario Monti, as prime minister. Yes, he - in theory - was in tune with their values. He did manage to accomplish a few things like liberalizing store opening hours, and this: http://blog.therealitaly.com/2015/04/16/fixing-italy-a-little-bit-at-a-time/ http://blog.therealitaly.com/2015/04/16/fixing-italy-a-littl... but didn't really accomplish as much as many had hoped. The fact that he was unelected is part and parcel of how the system works in Italy, as the prime minister is not directly elected. For that matter, Matteo Renzi wasn't either.
caoilte 11y ago
Yeah. :-). You should read the Economics of the Colonial Cringe. I think you'd enjoy it. http://www.theatlantic.com/technology/archive/1991/10/-quot-the-economics-of-the-colonial-cringe-quot-about-the-economist-magazine-washington-post-1991/7415/ http://www.theatlantic.com/technology/archive/1991/10/-quot-...
pinaceae 11y ago
they also advocated for same-sex marriage - in 1996. their liberal, in the classic sense. their stance on various wars is often questionable though. supported the second iraq invasion.

kcorbitt 11y ago

> Global investors are not buying into the mania: the shares of companies listed in both Hong Kong and Shanghai are now 30% more expensive in the latter. I'm quite confused by this statement -- if the shares on both exchanges are equivalent, this seems like an insanely good arbitrage opportunity. Are China's capital controls really tight enough to prevent Chinese nationals from finding a way to invest in the same stocks on the HK index for a 30% discount? And even if they are, I'm not clear why the Chinese government would do this -- it's like charging a 30% premium to domestic investors just for being Chinese.

pjc50 11y ago
Are China's capital controls really tight enough to prevent Chinese nationals from finding a way to invest in the same stocks on the HK index for a 30% discount? The answer has to be yes - otherwise, as you say, it would be arbitraged away. It's still a bit leaky, but when it leaks it seems that investors much prefer to diversify into ownership of overseas property. Why capital controls? Because China is more nationalist than globalist. It's also critical to keeping the industrial policy working by forcing local re-investment and preventing capital flight. Chinese growth depends on cheap money, which in turn relies on forcing people not to charge a risk premium for the percieved confiscation and rule-of-law risks in China.
- hga 11y ago
  China follows a nasty policy of financial repression (https://en.wikipedia.org/wiki/Financial_repression https://en.wikipedia.org/wiki/Financial_repression) in which the interests of "the people" is an afterthought at best. ADDED: combine that with little to no social safety net, and the One Child policy which most? often results in 4 grandparents supported by 2 children supported by 1 grandchild (not quite so bad in the rural areas, but still inadequate, especially if a child dies), and you have the worst social planning mess outside of outright genocide (which the PRC did a lot of through the Cultural Revolution) that I'm aware of.
  - virmundi 11y ago
    Wow. I didn't know that they really lacked the social safety net. So maybe now that they are more industrialized the could have a real communist revolution and see what happens?

amelius 11y ago

If companies are worth more than what they make in revenue, stock-holders should be penalized for illegal gambling.

mcdougle 11y ago
Ok, I'll bite. Why illegal gambling? Wouldn't it be legal gambling, if anything, since it's condoned (and encouraged) by the government?

smaili 11y ago

> Kemian Wood Industry, which used to boast of the quality of its composite floorboards, took radical steps to deal with the downturn. It switched its focus to online gaming and changed its name. > A hotel group rebranded itself as a high-speed rail company, a fireworks maker as a peer-to-peer lender and a ceramics specialist as a clean-energy group. I've heard of pivoting, but this goes way beyond that. Doing a complete 180 on what you're producing/selling and changing your name? That's both fascinating and scary at the same time. As a customer, how do you know whether the company you're buying from will still be around?

pcrh 11y ago
It makes you wonder what the determinants of success are for a Chinese business. Would you trust cars made by Nike, if they suddenly started making them, or a airline run by the Hilton Group?
- ngd 11y ago
  How about an airline run my a record label?
  - supercanuck 11y ago
    or spaceships.
    - timlovelee 11y ago
      LG makes Shampoo
      - meatysnapper 11y ago
        Giant industrial conglomerates are a totally different case. We are talking about a normal, single-product/field company switching to something totally unrelated. That's totally insane.
      - vardump 11y ago

kordless 11y ago

I may be completely off about this, but isn't it the term suppose to be "going concern"? I thought I had discovered a phrase I didn't know, but then I did a Google search and the only occurance is this article. That said, if China's market goes under it may be pretty gory. :)

phyalow 11y ago
Play on words... Extremely "bullish" market, lofty valuations, irrational exuberance, people are going to end up gored when some of these companies (300431, 283.HK, 566.HK etc) end up in dirt and no longer qualify as "going concerns".
AdmiralAsshat 11y ago
I assumed it was "a growing concern". But I can't ding the submitter for copying verbatim from the article title.
EliRivers 11y ago
It's a pun, playing on the well known phrase "going concern". It's a bull market, and people are going to get gored when it stops (which of course is something bad a bull can do to people), which is a concern. A "going concern" is some kind of viable enterprise, so by casting it as a "goring concern" they're alluding to the fact that the stock bubble does not look like a viable enterprise, as well as getting in a reference to bull markets and giving their prognosis. Puntastic.
primo44 11y ago
While we're on the subject, when you say "isn't the term suppose to be", you actually need to say "isn't the term supposed to be". I've noticed that people have started pronouncing this wrong (they now say "suppoes" rather than "suppozed") and that's spread into the written form. Similarly, people are also replacing the correct "used to" with "use to".
- deciplex 11y ago
  "Use to" can be correct, e.g. "Didn't we use to go to the same school?" The tense of "use" should match the tense of the predicate.

dmix 11y ago

> A shift to monetary easing and fiscal stimulus—and expectations of more to come—help explain why the rally began. But the longer it continues, the more it looks like irrational exuberance. The spark that started it all? This is crazy: > Credit Suisse estimates that 6-9% of China’s market capitalisation is funded by credit, nearly five times the average in the rich world.

phyalow 11y ago
Not to bad if you stand back and consider the entire US economy reflated only on the bullshit of the Fed!