March 7, 2005

AND STILL A BUBBLE:

China Stock Market Misses Out on Boom: Despite a roaring economy, share prices are down 40% since 2001, forcing many firms to raise capital in Hong Kong or the U.S. (Don Lee, March 7, 2005, LA Times)

China's national stock index sank 15% last year, making it the worst performer of the world's major markets. The index is down more than 40% from its peak in 2001.

The losses might be a little easier to swallow if China's economy wasn't doing so well. Last year, the nation's economic output surged 9.5%, the fastest pace of all large economies and more than double the U.S. growth rate.

China's struggling stock market, analysts say, threatens the nation's financial and social stability. Leaders meeting this week in Beijing for the annual National People's Congress will consider proposals to address the ailing market.

The problem reflects an underbelly of China's booming economy. Although price declines are in part a correction of heady values in prior years, many experts say insider trading, fraud and a lack of financial disclosure are undermining investor confidence.

Another big drag is the market's ownership structure. Two-thirds of the shares, measured by value, belong to the central government and are not tradable. Beijing wants to unload its holdings onto the market, in large part to reform corporate governance practices, but the move could further depress prices.

"This is a totally debilitating situation," said Donald Straszheim, a Los Angeles-based economist specializing in China.


Yet folks still think it a capricious decision on the part of the Chinese to invest in America's future rather than their own.

Posted by Orrin Judd at March 7, 2005 7:49 AM
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