In the International Herald Tribune, Philip Bowring writes:
Some of the reasons why the Chinese stock market continues to defy both gravity and the half-hearted efforts of the government to cool it are normal and obvious. But there is another reason that says a lot about a particularly Chinese situation: the relationship between Communist party power and wealth accumulation.
The normal ingredients are a combination of high household savings, low real interest rates and buoyant corporate profits. The nation is awash in cash, in part the domestic counterpart of its trillion dollars of foreign exchange reserves.
Add to this fuel the Chinese love of gambling and the novelty of stock markets, and one has the same combination of circumstances that created mega stock booms in Hong Kong in the early 1970s and in Taiwan in the late 1980s.
But China has an additional ingredient, one that partly explains why the government is ambivalent towards the boom, which has seen stock prices double in six months and price-earnings ratios reach the stratosphere. [Full text]
