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Fears Rise of Chinese Stock Implosion
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Fears Rise of Chinese Stock Implosion

World

RENEE MONTAGNE, host:

As we reported yesterday, high-level talks between China and the U.S. ended this week with no breakthroughs. At least that means China can get back to its biggest concern - cooling down its red-hot economy. In recent days China has been warned repeatedly that its stock market is charging too hard. If there's a major correction, it could rattle U.S. markets.

NPR's Anthony Kuhn reports from Beijing.

ANTHONY KUHN: At a downtown brokerage, throngs of punters are watching the Shanghai Index climb across the big screen. The atmosphere is anything but subdued, despite remarks yesterday by China's Securities Regulatory Commission. It told brokerages to warn newcomers about the risks before they open new accounts. On Wednesday, former Federal Reserve Chairman Alan Greenspan warned of a dramatic correction in China's markets. Outside the brokerage, Li Xi Huan(ph) is taking a cigarette break. The 57-year-old retired worker just opened a trading account this month.

Mr. LI XI HUAN (Retired Worker): (Through translator) I'm retired and I've got nothing to do at home so I figured, hey, I'll just take some idle money to invest. It's not worth it to borrow money to trade stocks though. If you pick the wrong ones, you lose your shirt.

KUHN: Mr. Li is one of the cooler heads in a hot market. The Shanghai Composite Index is up 55 percent so far this year, following gains of a 130 percent last year. At the Jinbow(ph) Pawnshop down the block, 28-year-old shopkeeper Fan Meo(ph) says some folks do indeed come here to raise money to buy stocks.

Mr. FAN MEO (Shopkeeper): (Speaking Chinese)

KUHN: Some people have come to ask about putting up their homes as collateral, he said; we tried to talk them out of it. People mostly pawn stuff to raise cash in a pinch. If they play the stock market, they may not make enough to pay off the interest on what we loan them. Small investors taking big risks are driving China's stock market boom. The official China Economic Times yesterday, cited a survey of office workers. It found that 60 percent of the investors among them made the equivalent of less than $400 a month. Half of respondents said they were new to the markets and understood little about them. Seventy-three percent said they were playing the markets with their household savings. What concerns analysts is that these investors ignore fluctuations in the market and government attempts to cool it down.

Mr. MICHAEL PETTIS (Economist): The market has been trained to see every decline in the market as a buying opportunity. And that's really scary.

KUHN: Michael Pettis is a visiting economist at Beijing University. He notes that last Friday Beijing tried to slow the market down by raising interest rates, widening its currency's trading band and requiring banks to keep more money in reserve. The markets appear to have shrugged it all off.

Mr. PETTIS: One of my worries about this move is that it's going to have no impact on the actual markets, but it will have a very negative impact by undermining further any belief that the government has control over the markets.

KUHN: Pettis notes that Beijing can hardly afford a stock market meltdown now, with a leadership reshuffle coming up this fall and the Beijing Olympics next summer.

Anthony Kuhn, NPR news, Beijing.

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