When China's stock exchange plunged on Tuesday, world markets went into a tailspin, but Chinese investors are puzzled by the jittery reaction, writes Clifford Coonan, in Beijing
The dramatic fall in world stock markets on Tuesday was largely blamed on falling share prices in China, a country increasingly seen as the engine of global economic growth and a bellwether for the world's financial wellbeing.
In China, however, no one seemed unduly worried by developments, as they watched the rest of the world get jittery over events in a market that is still a minnow in global terms. Perhaps the rattled investors were thinking about what the Chinese market might look like a few years down the road. While share ownership is a relatively new phenomenon here, Chinese investment ability is the stuff of legend. All this, combined with a national love of a bit of a flutter which keeps Hong Kong's racecourses earning huge revenues every year, makes for a potent combination.
On Tuesday, China's main stock exchange, the Shanghai Index, plunged by nearly 9 per cent, its worst fall in a decade, and the slide was enough to send blue chips on Wall Street and other world markets spinning headlong. US Federal Reserve Chairman Ben Bernanke called for calm, assuring investors there was nothing to worry about.
In communist China, the Shanghai Stock Exchange was long seen as the most potent symbol of vile capitalism; the 1949 Revolution and the ascent of Mao Zedong's hardline communists brought an end to share-owning in China. It became a capital offence. The exchange reopened in 1990 after four decades in the ideological wilderness, but its performance has been mixed since its return to the investment arena. While the economy has been growing steadily at double-digit percentage rates for well over a dec+ade, shares have underwhelmed. And investors do not obey the usual rules that govern investment behaviour. The September 11th attacks on the US made barely a ripple on the Chinese investment climate. And the market has always struggled with corruption, making it unattractive until not so long ago.
BUT NOW THE middle class in the world's fourth-largest economy is finally taking to buying stocks. This is partially because there are few enough other vehicles around to invest your money in, given that the government has been clamping down on speculation in the property market, and interest rates are so low that saving in a post office book won't give useful yields. Shares are an attractive investment.
Yuan Yizhi, a 50-year-old unemployed man in Beijing, started investing in shares 10 years ago when he lost his job at a state-owned firm and was keen to make a bit of money and pass the time. Li Hengren (65), a retired manager from Beijing, said he'd been totally smitten by the stock market for two years now.
"Since I retired, I've got a lot of spare time on my hands, so I've been buying stocks to pass the time. I don't have any real opinions about the stock market and I don't even care that much about the result of my investments. I'm just playing for fun," said Li.
Tuesday's fall was blamed on investors cashing in shares, after rumours the Chinese government was getting ready to introduce drastic measures to stop the country's economy overheating. Chinese investors have viewed the slide of the stock markets, which has sent jitters throughout the global financial system, as a chance to get in and buy some cheap shares.
Most investors are aware that foreign investment counts for just three per cent of the total in China's stock markets, and are puzzled why a slide in Chinese share prices should trigger a global sell-off. Li Rong (22), a graduate student at Tsinghua University, loves to buy shares, and she believes there has never been a better time to climb on board. China is booming, after all. She and her boyfriend started investing about two months ago and have invested 800 yuan (€80) and 1,000 yuan (€100) respectively. For many young people, owning shares is like owning the latest mobile phone - a functional fashion accessory.
"When evaluating the development of the Chinese stock market, I am still very optimistic, although many people were scared on 'Black Tuesday'," said Li. "Frankly, things are trapped in a state of disorder right now so obviously I'm not planning to make any big deals at the moment until things calm down." In the long term, though, she remains keen on the idea of investing in shares.
PERHAPS THE FORMER head of the US Federal Reserve, Alan Greenspan, would have described the global reaction as "irrational exuberance", as he once did the enthusiasm for internet stock. The exuberance part of the equation came on Monday, when the first day of trading after the Chinese New Year holiday saw the Shanghai composite index break 3,000 points for the first time.
The Chinese economy is expected to expand by about nine or 10 per cent this year. Chinese growth is making itself felt on commodity prices around the world, and its cheaply produced products are keeping prices low in many Western countries.
Some of the comments on Sina.com, a leading Chinese website, show how individuals are not reacting well to the news that shares can go down as well as up.
"Where is the money? Where is our future? My earnings, my sweet blood, were stolen by economy bandits reasonably. I am a foolish, a terrible idiot," posted one bereft investor. Another investor on Sina, whose online name is "Angry Bull", blamed the government. "The terrible decline on Tuesday has more to do with officials! They make policy subjectively without careful market research, without background knowledge. So strange!"
A bulletin board member, "Feng Yun", said he hates people buying shares. "My father was infatuated with the stock market for about a year and lost nearly all of our savings. He has changed a lot since he became locked into the stock market: he's become cynical, bigoted, and mean - he haggles over every ounce. And now my parents quarrel every day. It's a nightmare for me."
Despite grumbles from inexperienced investors, who don't sound that different from anyone losing money anywhere else in the world, China's stock markets are here to stay and investors are enthusiastic - a record number of investors signed up to buy shares on Tuesday, the worst day for the index. This has great ramifications for building a share-owner society, if not quite a stakeholder democracy in the Western sense, but the presence of so many individual investors will cause ripples.
"The Shanghai and Shenzhen indexes moved high because Beijing is allowing individual Chinese to enter the market with small purchases; their buying drove the market higher over the last year and now they are learning about 'volatility'," wrote one investor.
It's still a growth market. China's stock markets are still too small, and the number of investors is still too low, for a collapse in the indices to make a major impact on the overall economy. Chinese investors know this and were somewhat surprised at Tuesday's sell-off abroad.
"Anyone paying attention saw the China correction coming, with most major investment banks warning of overheating. The surprise was the rest of the world's reaction. Since when do traders in New York, London, Frankfurt or Tokyo care about A shares in China? Chinese traders never care about the rest of the global equity markets," wrote one anonymous investor. "China was the only Asian market that reacted positively when the Norks [North Koreans] had the nuke test. Better said, they ignored it and reacted to domestic concerns. The markets in China and the rest of the world have been two separate worlds for as long as they have existed. Basically, China has never been a big part of the broad global system," said the investor.
"Is this 'Black Tuesday'? Oh, please, it's hardly 1929. How about 'Ruby Tuesday'?"