Understanding the China Stock Market Meltdown

Here is a great article I found.  The author is quoting from Strafor . com.  He refers to the Strafor website as like having your own CIA.

Source: The Kingsland Report

The Chinese government has become increasingly concerned about levels of investment in its economy or, more accurately, the sheer amount of money that is chasing projects. State firms with limitless access to subsidized capital from state banks have used that access to launch thousands of nonprofitable firms. This glut in “investment” money drives up the cost of commodities and adds industrial capacity without actually producing anything of much use, making life more difficult for the average Chinese and unduly harming relations with foreign powers that face a glut of otherwise noncompetitive Chinese goods. This penchant for over investment has now spread to the stock market in two ways.

First, the same politically connected government officials who started dud companies are taking out loans to buy shares, or are using shares they already hold as collateral for new loans. Second, ordinary Chinese citizens have started borrowing — sometimes against their homes — in order to play the market. In January, the number of total traders on the Chinese exchanges grew by 1.38 million, an increase of 134 percent from a month earlier, while stock turnover was up 700 percent from a year earlier. The net result is an absurd stock surge with no basis in fundamentals.

On Feb. 26, China’s State Council launched a new “special task force” that accurately could be referred to as the “get-those-idiots-to-stop-borrowing-to-gamble-on-the-stock-exchanges” team.

Read the rest over at The Kingsland Report…..

banner ad