As we have noted for a while, the Ultimate Crony Capitalist state, China, is seeing very rough waters economically. A massive property bubble (and bust) fueled by Keynesian shortsightedness, not unlike the one we experienced here a few years ago, but much bigger is gripping the country. The Chinese dream is “maturing.” For the first time since emerging from the insanity of Mao the PRC is experiencing real economic pain.
This is a report from spring of last year on what was happening in China.
What today’s 8% drop in the Chinese market means is not entirely clear. CNBC tries to explain.
It shows problems on several levels. Stock markets should allow investors to discover the fundamental value of companies, and although all markets are prone to under- and overshooting due to herd psychology, China’s market is particularly off-course. That’s partly because it is dominated by opaque state-owned companies. In their relatively short history, China’s stock markets have fluctuated in ways that bear no relation to economic reality. Its latest problem is that debt has fueled the recent rise in stock prices. There are also signs of debt-related stress in other parts of China’s economy including property, which is undergoing a painful government-instigated slowdown. One developer, Kaisa Group, recently missed a $23 million interest payment on a bond abroad, alarming investors.