Sunday, August 2, 2009

China's stimulus-fueled stock boom alarms Beijing

"But while investors expect the market -- up more than 80 percent this year -- to keep rising, Chinese leaders are alarmed. They worry that too much of the $1 trillion lending binge by state banks that paid for China's nascent revival was diverted into stocks and real estate, raising the danger of a boom and bust cycle and higher inflation less than two years after an earlier stock market bubble burst.

Beijing is trying to tighten credit controls without derailing the economic revival or causing a market crash -- a risky path at a time when Chinese leaders say a recovery is not firmly established.

"It's a very serious threat. The Chinese government is walking a tightrope," said Mark Williams, Asia economist for Capital Economics in London. "There is the question of what happens if they rein in lending, because there is really no strong evidence that private sector demand is picking up."

"Above 3,000 points, the benchmark index is just in the process of blowing a bigger and bigger bubble," said Wen Lijun, an analyst for Nanjing Securities. "It is just excessive liquidity and no other reason."

Source: AP

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