Ms DD Posted May 15, 2007 Change of culture gives Chinese a taste for people's capitalism Some are betting their houses, others giving up jobs to trade - but there are fears a bubble is forming Jonathan Watts in Beijing Tuesday May 15, 2007 The Guardian Even before the doors of the securities trading hall opened at 9am, Yang Jingshan was queuing up to part with a huge chunk of his life savings and much of the ideological baggage of his youth. On the advice of his daughter, the 50-year-old Beijing shop manager joined the morning surge of speculators on a mission to buy his first shares. Waving his registration paper amid a jostling crowd at the CITIC Securities centre, Yang opened an individual trading account, on which he plans to stake 100,000 yuan (£6,600). Article continues -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Such an act would have been unthinkable during his teens. In the 1966-76 Cultural Revolution, the mere mention of such capitalist behaviour would have led to public denunciation, imprisonment or death. In today's China, it is those who fail to speculate who feel they are losing out as bourses surge amid a stock-buying frenzy. In trading halls, on internet sites and through mobile phones, millions are playing the markets. "Stocks are doing so well that everyone in Beijing is excited. That is why I am investing," said Yang. "I don't know much about it, but I will listen and learn from more experienced players." Even by the standards of the world's fastest growing major economy, share values are rising to staggering levels - and so are the risks to novice investors such as Yang. Since January, the Shanghai Composite index has gained 50%, following a rise of 130% last year. Despite fears that a bubble may be forming, records tumble almost every day. Last week, the Shanghai Composite index broke the 4,000 mark for the first time, two months after hitting 3,000. On Wednesday, trading volume in China was greater than the rest of Asia combined. Even Tokyo - long the dominant market in the region - was made to look a pygmy in comparison with the 377bn yuan worth of business done in Shanghai and Shenzhen. The social impact is huge. Unlike in the west, where big institutions are the main market movers, the supercharged growth in China is being fuelled by individual investors. People are buying stocks to boost their retirement funds, students are speculating to pay for their education and housewives are borrowing from banks to expand their families' share portfolios. Thrifty In the past year, the number of A-share trading accounts has jumped from 65m to 95m as more and more people chase the get-rich-quick dream. It is already a frenzy, but the pace is accelerating. According to the domestic media, 370,000 new accounts were opened on May 8 alone - equivalent to almost half the total for the whole of last year. Despite its reputation as a nation of thrifty savers, China is seeing a huge shift of capital from safe banks to risky stocks. The logic for the change is beguiling. Bank interest rates are often lower than the 3% inflation rate so money loses value. Stock valuations, however, have tripled in less than two years. So far, almost everyone is a winner. The domestic media is filled with stories of instant fortunes and huge gambles. In the west, the Chongqing Morning Post has proclaimed a 60-year-old former cleaning lady as the "goddess of stocks" because she doubled her 20,000 yuan investment in two months. In the south, Nanjing newspapers have reported on Xiao Feng betting his three apartments and two cars on the market. Further north in Xian, the focus is on a Buddhist monk, Shi Changxing, who opened a trading account last week. Initially, it was reported that he was motivated by a desire to raise more money for charitable causes, but it emerged he was lending his name to a friend who wanted to speculate more than he was allowed. The bigger the risk, the more it seems to pay off - at least for now. Qi Xiaotong, a newspaper editor in Shenzhen, put her family home up as collateral for a 1.3m yuan bank loan, then bet the lot on the stock market. "I felt a huge pressure at the time, but now I don't think there is any risk at all because I have already doubled my money," she said. "My family trusts and supports me in this." For others, making money has become a passion. Yang Yugong, aged 53, gave up his job as a drama teacher at Beijing's top performing arts academy so that he could spend more time at the trading hall. He claims to have made about £5,000 in the past week, on top of the 1.2m yuan (£80,000) profits in the previous 18 months. "I hate weekends because this place is closed and I love coming here so much." Despite strong corporate earnings, the authorities are increasingly worried that a bubble is forming. In recent days, central bank governor Zhou Xiaochu has publicly expressed "concern" at the sharp rise in stock prices while the security regulatory commission has ordered brokers to educate clients about risk. Tougher moves may be ahead. The state council has consulted economists about the possibility of a new capital gains tax. The Macroeconomic Research Institute, one of the government's leading thinktanks, has called for an interest rate rise. According to analysts, the longer such cooling measures are delayed, the greater the potential damage from a correction. "A-share valuations could soon advance into clearly unsustainable territory," warned Goldman Sachs in a recent report. More bearish analysts said social stability is at stake because millions of people are exposed to a downward shock. "Mainland investors are about to learn a painful lesson that stock prices do not reach the sky and not everyone can be rich," wrote Andy Xie in the South China Morning Post. "If the bubble grows for another year or two, the unsustainable demand may become too large for a soft landing... At some point this will destabilise the country." Hiccup There have been collapses in the recent past. The last great bull run in China ended in 2001 when the Shanghai bourse nosedived, countless individuals lost everything and the newspapers were filled with stories of suicides. This time, a lot more money and people are involved. The stakes were apparent on February 27 when a 800bn yuan hiccup in the Chinese markets was blamed for a huge sell-off around the world. Yet the optimism is unshakeable, partly because of a widespread belief that the government will not allow a meltdown ahead of the Olympic games. Despite a 60% increase in new accounts, Gu Xiaoyi, the manager of CITIC Securities trading centre in Beijing, said the market still had plenty of room to grow. "I'm not worried about overheating. There are probably only about 50m people trading in China. That is a small fraction of the population. Most people I know are making money. That is because everyone is buying now. When they start selling, that is when people could lose out." For newcomers to the market, however, a downturn seems a remote possibility. "Yes, I have heard the warnings from experts and from the government," said Yang after buying his first shares. "But I believe that nothing bad will happen before the Olympics. Until then the trend will be up." Marching to a new tune Such is the new passion for capitalist speculation that pranksters in Beijing have proposed a change in the lyrics of the national anthem. "The March of the Volunteers" is the call to arms enshrined as the anthem when Mao Zedong took power in 1949. Its lines tell citizens to rise and "brave the enemy's fire" in the fight to defend China and communism. A satirical version has recently been buzzing across Beijing mobile phones, which urges residents that they should rise to "invest all of their funds in the tempting stock market", the Beijing Evening News reported on Wednesday. "The Chinese nation is at its most crazy hour, all let out the cry to buy! ... Cherish the dream of overnight wealth. March on! March on!" the text message read. http://www.guardian.co.uk/china/story/0,,2079797,00.html Quote Share this post Link to post Share on other sites
