China’s Stock Market
---Another Goldbach Conjecture in the World Economy?!
When mentioning China’s Stock Market, many people, no matter in the country or abroad, would be dejectedly sighing with vexation on their faces.The word “tiger”in the Chinese saying that someone becomes jittery when talking about the tiger, it is said, would be replaced by “stock” and would be collected into the Chinese Idioms Dictionary.
Chinese stock market, the same as Chinese football, is a combined or synthesized word of sadness, disappointment,melancholies and exasperation.
It is known that about 98% of the Chinese individual stock investors lose their money, and even some of them have lost to the degree of jumping off the building.The Chinese stock market has made thousands of individual investors have totally their confidence ininvestment field.
However, what mostly astounds and obscures quite a number of experts and professionals is, after over 30 years’rapid development at 2-digits high growth rate with the world-shaking new look of the whole country and the great changes of the Chinese people’s life, the Chinese stock market has remained same, isolated from world’s stock markets years’uptrend. It macroscopically looks like a pond of stagnant or lifeless water; Macroscopically it looks like a reinless wild horse with no direction, no regulation,and no potency. China’s stock market and China’s fast economic expansion, being poles apart, are surprisingly and obviously not coordinated.
China’s Stock Market, another Goldbach Conjecture in the World Economy?!
I left China in 1991 before the Chinese stock market initiated for a couple of years. What a little knowledge I got about the word “stock” or “investment”was from the novel《The Morning of Shanghai》(上海的早晨）that I read in teenage. I should be a beginner talking about the Chinese stock market although I have had over 20 years’rugged and uneven stock experience of North America. It was in recent years I started trying to discern, study, and observe China’s stock market from the other side of the ocean. Exactly speaking, I came to the perceptual knowledge of China’s stock market only after buying several stocks when I went back to China in 2007.
In China, no matter in big cities or small towns there are many trading halls in which none of material tradings actually occurs. An important part of their daily life,thousands of the individual investors regularly by turns go to these trading halls to watch the big trading panels, one another discuss or argue a stock’s trend and exchange information. Not in China, and not in the trading halls, it is impossible to feel the atmosphere of hubbub and ardency with boisterous noise of the individual investors. Also it is impossible to experience the excited scenes of flying newspapers, magazines, forums as well as all kinds of hearsays about stocks on the street conners.
None of this can be viewed in North America since there is no such kind trading halls and naturally no watching panels in North America’s cities and towns..
What is the reason that incurs a scene of fogging flower looking at China’s stock market?
Like China’s politics, economy, history, culture and geography, China’s stock market has her particular characteristics.
First, there are so many individual investors in China.It is roughly summed up that one out of ten are investors at peak period; then it came to 25:1 when the stock market became bear.In recent two years many individual investors left the stock market due to the appearance of Alipay, etc.But the ratio may still be 35:1.
This kind of situation is rarely seen in the western countries. After the end of Wold War Two, Keynes’economic ideas has wielded critical impact over the western capitalist world for over half a century.Summing up the world Great Depression that broke out in 1930s, Keynes deems that one of the important reasons is inefficiency of consumption.From this viewpoint Keynes thinks it is necessary for the state to intervene and adjust economy by means of the government’s financial deficit and debt borrowing in order to increase consumption.The establishment of the social security and welfare systems have released worries of the sick people and the seniors and largely promoted expenditures. In the 1960s, the spread of credit cards in the advanced economies further let individual premature consumption become fashionable and the word moon-lite came out.
A philosophy goes as follows: a thing turns to its opposite when it comes to extreme. Over decades’continuous deepening and spreading of Keynes’economic and welfare policies finally resulted in heavily debt-ridden situation for most of the western developed countries as well as thousands of individuals, leading to hitherto unknown state credit crisis one after another and increased individual bankruptcies.All mentioned above were one of the crucial sources of the breakout of 2008’s financial crises, also were one of the significant reasons indicating why Iceland, Spain, Italy et. were almost facing state credit bankruptcies
Wide dispersion of Keynes’ economic ideas has exerted great influence on generation of generation of the people in the developed countries, who have been pursuing consumption and giving up saving.The bank deposit rate has been falling year by year and people have managed to spend 150 with 100 on their accounts.Statistics shows that 50% of the families can not afford when $3000 cash needed in emergency,although the mortgage for house and the loan for car may be one of the vital reasons for their lack of cash.
Due to the reasons above,not many individuals buy and sell stocks in the west capitalist countries and there are very few individual investors. Those individual investors, like those in casinos, are mostly Chinese. I personally think this is because of the Chinese cultural heritage and gene inheritance.In north America stock trading is mostly directly or indirectly operated by different kinds of, big or small, institutions like the companies of mutual fund, life insurance, hedge funds, securities attached to the banks, and retirement funds for teachers, civil servants etc.The rise and fall of a stock is basically gamed or contested in reasonable ways of cooperation or incoordination by these financial agencies under the supervision institutions and regulations. The number of such institutions is far more than those in China, mostly private.
Possibly influenced by ancient WeiQi (圍棋）culture and maybe gambling being their favorite, the Chinese have a distinct,smart and sensible born-talent in math, which incurs an extraordinary trait in calculating and wagering. On the other hand, as the Chinese people have a big sum of cash in hands due to their two virtues: thrifty and saving, stock market naturally become the battlefield for thousands of the individual investors.Thus an evident characteristic different from the stock markets in the western countries is apparently viewed: the major investors in China are not the investment institutions but the countless big or small individual investors.
The variation of investment structure would result in different trends of a individual stock, even as well as that of the the whole stock market. In north America, the law of movement in macro-economy could be traced albeit it is not explicitly regular.A mirror of the movement of macro-economy, the motion law of the stock markets in western countries is better viewed. Almost similar to the markets, the direction of rise and fall of an individual stock, normally gamed and contested by them though, could be easily harnessed and adjusted with tacit agreement or cooperation between the institutional investment agencies. Usually there is no unexpected hindrance and interruption on the way. While in China’s stock market, the institutional investment agencies play an influential part though, they feel hard to control the market and harness an individual stock. Millions of individual investors, like the guerrilla with large amount of money, rush out from all parts of the country, disturb and interrupt the institutional investment agencies’ strategies or plans, which often leads the institutional investment agencies’to feel hard, sometimes fail, to realize their expected targets so that they have to change their plans and re-adjust their strategies confronted with this kind of situation. For instance, the institutional investment agencies expect to raise a stock by 5%, but instead they are pressured to sell the stock when there are so many selling orders coming one after another.
When looking at the shareholders` information of the listed company in China, it is not hard to find that many of the first ten biggest shareholders of the company are, instead of the investment institutions, individual investors,. this is almost impossible for the third circumstance to occur in the western economies. In north America, only those who are the founders, co-founders or the heirs of the company may become the biggest shareholders and the rest of the other biggest shareholders are usually investment institutions, very few individual investors could become the biggest shareholders of a company. The difference denotes that in China a number of individual investors have large sum of cash in their hands and they have ability to become one of the first biggest shareholders of their favorite companies by themselves, not through the investment institutions such as mutual funds, etc..
This kind of variation would exert a significant impact over the company`s stock price and lead to an uncertain trend change of the company`s stock. The stock would stagnate since the investment institutions, who , not one of the biggest shareholders and usually the market maker, would accustomedly show little interest in taking part in the company`s stock operation.
The fourth reason is that China has her particularities There are six countries in the world the areas of which are over six million square km: Russia, Canada, China, U.S. Brazil and Australia, of which Canada, U.S., Brazil and Australia all are immigration countries with histories of less than 300 years. Russia`s history is longer, but only 1200 years, dwarfed by China`s over 5000 years. On the other hand, Russia is bigger than China in area though, most of its land is tundra with sparse population. Therefore, China is the only one country with large population, vast land, and long history in the world, which leads to her unique particularities.
China’s another particularity is China`s political regime--one party system, which，obviously different from other big economies,in my opinion is conforming to such a big country like China's national conditions and.In fact, Western democracy complies with either the big immigration countries with short histories and cultures like U.S. Canada etc, or relatively small countries in Europe,South America and Asia with longer histories and cultures.In a particular big country as China, political stability and peacefully secure environment are very important for development.Any unstable factors based on partisan wrangles would result in national disruption and riots.
The fourth reason is China’s particularities. There are six countries over six million sqare km in the world : Russia, Canada, China, U.S.,Brazil and Australia. Of which Canada, U.S., Brazil and Australia are immigration countrirs with short histories of less than 300 years. Although Russia`s history is longer, its 1200-year history is dwarfed by China`s over5000 years. Bigger in area than China though, Russia has most tundra with sparse population. Therefore, China is the only one country with large population, vast land, and long history.
The second particularity is
Long bull years and short bear years are the first distinct characteristic of North American stock markets, which means investors in North America have kept more optimistic feeling for the stock markets. On May 26 1896 Dow Jones index first came to the public with 12 stocks average at 40.94 although today only General Electric still remains. The Dow Jones index increased to 30 stocks in 1928 and the number has so far remained with a number of stocks of deleting and adding. What is worth mentioning is on Nov. 11, 1999, Intel and Microsoft , two scientific technology giants joined the Dow Jones.
On Nov.1,1972,Dow Jones rose to 1000 (1003.16); Nov. 21, 1995, it passed 5000, (5023.55). On Mar.29,1999, Dow Jones closed at 10006.78 and July 19,2007 it rose above 14000, ended with 14000.41. From November 2007 Dow Jones started falling and tumbled under 10000 on Oct.6 2008. 4 days later on Oct.9, it plunged below 9000. It closed at 6626.94 on Mar.2 2009, decreasing 7373.47 points in less than two years. But from Mar. 2009 Dow Jones started steadily ascending and stood above 14000 on Jan.28, 2013, after experiencing several small bear markets, each less than 2 months。Five years have passed and so far it has still been wandering about 16000 and 17000 with strong bull trend.
Contrary to the North American stock markets, the Chinese stock markets have witnessed much longer bear years than bull markets for many times. On Dec.19, 1990, Shanghai Stock (SS) index was 99.98.Two years later, from Apr.1990 the index wildly jump from 381.24 to 1234.71 in May, rising 225%. The SS, in the following year, created two highs, reaching 1339.88 in Feb. 1993 and jumping to 1358.78 in May.After three years’ bear market, it came back to 1000 on Nov. 1996.There was one and half year bul market for China’s stock market when the SS climbed to 2000 in Aug.2000 and it returned to 2000 in Nov. 2006 after five and half year’s bear market. In less than one year the SS jumped to 5954.77 in Oct.2007, almost the same percentage as that of 1992, repeating the similar wild leaping play that occurred in 1992. Then followed are almost 7 years bear market. Having wandered around 2000 for years and isolated from the European, American, Japan and Hongkong’s years’ uptrend, there is still rebounding signals.
In capitalist countries the formation and development of the stock market is an inevitable outcome, as well as a significant milestone of the mature market economy since the economic policies of the governments are relatively stable and seldom changed except when confronted with crisis.For a protracted time China has focused on planned economy and economic development and operation run around the government. Under such background, with the cry of reforming planned economy, and different from the European and American capital market, the Chinese stock market has from the beginning carried the responsibility of reviving state-run enterprises by financing, which means that the state-run enterprises offer their stocks to receive funds from the stock market, but care little about whether the investors will receive returns. With these backdrops,the Chinese stock market is closely pulsated with the Chinese government’s all kinds of political trends and economic policy mutations. It is acknowledged that almost every crazily unreasonable rise and fall in China’s stock market has connection with the government’s specified policies change. 1994’s three intervening policies to save the stock market,1996’s stock market tumbling, 1999-2001’s bull phenomena,2006-2007 delirious soaring etc. all lead the stock market to change inconceivably and suddenly with the policies mutations. China’s stock market has become a policy market known by all.
As it is a policy market, the Chinese individual investors, even investment institutions, instead of doing investment, are the the wildcatters doing speculative activities. Those who can have perception on government’s policy change can make big windfall profits in advance; Those who have close and wide connection with the government can obtain more interests.It is recognized that the word “investment”has lost it original meaning. 2013 Summer Toronto
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