5月7日，芬兰gbtimes网站发布了上海交通大学中国金融研究院副院长、金融学教授钱军的采访报道，钱军教授表示，央行推行宽松货币政策的正真受益方不是中小企业，不是媒体机构，而是股市，但是从长远角度来看，政府和监管部门鼓励更多的机构投资者进入股市，逐步开放资本账户政策并拓展股民海外投资渠道，将会给股市带来结构性的变化。

Can the stock market rally really boost China’s economy?

“I think the current situation in the stock market will last a period of time, several months at least”, said Wu Qingyi, 83, after walking out of a local stock exchange in Beijing on a sunny afternoon in late April. Wu began trading in the 1990s and survived the big bubble crash of 2007-2008. “Various policies the government has announced are very favourable to the stock market.”

Up until Tuesday this week, when the Shanghai Composite Index, a major gauge for RMB-nominated A-shares, took its first notable dive in four months, the Chinese stock market has been on its biggest buying frenzy in seven years. The Shanghai index has now doubled since last year, new stock accounts have been opened by the millions, and the volume of trading has reached new heights – and this has all been supported by the government in a bid to boost the slowing economy.

The setback on Tuesday sparked a series of articles on Xinhua, with one arguing that “a rational bull market” can still continue (link in Chinese). Nevertheless, there are concerns about a bubble, and more crucially, about whether the current rally in the country’s still underdeveloped stock market can actually help the economy.

Experts say ordinary retail investors like Mr Wu, who continue to dominate the Chinese stock market, have been encouraged more by the government’s policies rather than real growth in the economy.

“This last rallying of the bull market is really driven by liquidity; in other words, the money injected by the government”, says Oliver Rui, professor of finance and accounting at the China Europe International Business School (CEIBS) in Shanghai.

“Both [the current rally and that of 2007] are driven by the very optimistic mood of the individual investors. The difference is I think this row of the bull market is kind of orchestrated, kind of a play by the government.”

Looser policies feeding bullish retail investors

The Chinese stock market is well known for having a life of its own, disconnected from what goes on in the real economy. In the period following the financial crisis, from 2009 to the first half of the 2014, the stock market performed poorly despite the fact China’s economic growth was stated to be highest in the world.

Even though China's growth has slowed to around 7% and concerns persist about overcapacity, high levels of local government debt and a cooling property market, the stock market has suddenly skyrocketed. To keep growth at sufficient levels while trying to manage a transition to an economy driven by domestic consumption rather than exports and investments, the Chinese central bank has pumped more money into the market in recent months by cutting interest rates and lowering banks’ reserve requirement ratio.

The biggest beneficiary of the looser policies, however, has been the local stock market, where ordinary people have turned to put their savings. An understandable move, as other investment options, such as property or online funds like Alibaba’s Yuebao, began to look a lot less attractive compared to surging shares.

“The plan is that they can channel the capital into real sectors, into real businesses. In other words, it can reduce the cost of capital. But unfortunately, I think most of the money stays in the stock market”, says professor Rui.

Besides loosening monetary policy, the government has taken more direct measures to support the stock market. Unlike in the US and Europe, where stock markets are dominated by institutional investors such as pension and insurance funds, some 85% of the stock accounts and up to 80% of the trading in China's stock market is done by individual retail investors. In April, limits on how many stock accounts people can open were relaxed, which led to a record number of over 4 million new stock accounts being opened within the one single week, and helped push the total number of A-share accounts to around 200 million nationwide.

“The stock market in China is dominated by small investors, and most of them have only a small amount of capital so they have to be trading very frequently. In other words they are speculators instead of value investors”, says Rui. “The stock market in China is very volatile and those individual investors follow the group, the momentum.”

Given the overall situation, even bad news such as the weak PMI rating released earlier this week become good news for the investors, as they raise expectations of stimulus money to follow.

“The worse the economic condition, the more the central bank is going to implement loose monetary policy, but the sector that directly benefits from these policies is the stock market, not the small firms, not the medium firms, but the stock market”, says Qian Jun, professor of finance at the Shanghai Advanced Institute of Finance (SAIF).

Need to go ahead with stock market reform

The aim of looser monetary policies is to lower the cost of financing for companies, and to create a so called wealth effect where surging assets create a sense of growing wealth, which in turn should boost consumption. The concern is, however, is that in the currently highly speculative stock market, valuations are not supported by fundamentals.

This is particularly the case in Chinext, the Chinese growth enterprises board and a current favourite of retail investors, where average price to earnings ratios are now over 100, much higher than in the NASDAQ at the peak of the internet bubble back in 1999.

“The bullish market does help a lot of households to get more wealth and for listed firms as well, you know, basically it is easier for them to grow“, says professor Qian. “But as it is I think the valuation is too high, I think it's quite risky. I think even if the bubble can grow bigger, there is always and ending to a bubble.“

While regulators have warned the public against selling their apartments to invest in stocks and reiterated the risks in margin trading (borrowing money from a broker to buy shares), the Chinese state media, for their part, has mostly been upbeat about the rally.

As recently as April 21, the People’s Daily, the official newspaper of the Chinese Communist Party, published a commentary (link in Chinese) saying that the market's level of 4000 is just a beginning, arguing that upcoming reforms and plans, such as a revamp of state-owned enterprises and the Silk Road initiative, will prove that the current bull market has legs.

This may be true, but only partly, says professor Qian.

“The three best companies in China, Baidu, Alibaba and Tencent, are not listed in the domestic A-share market. All these three companies are listed in Hong Kong, in the US and overseas. If you look at the fundamental performance, we think in a lot of sectors the overall economy is actually better than the stock market, because it's not always the best firms of an industry that are listed.”

“But there are still some structural problems so I disagree with the conclusion that the stock market, as it is, can just go up to whatever level. Because it's just not supported by fundamentals, and it's not supported by great solid performances on the front level.”

According to Qian, the problems with the Chinese stock market have less to do with Chinese investors’ penchant for gambling than with the inefficacy of the country’s financial system: a lack of investment options, closed capital account preventing ordinary Chinese from investing overseas and vice versa, and too few institutional investors and mechanisms to correct the market.

“It might drop 10 percent, it might drop to 15 percent and then – it might go on another run. But I think what's more important is that they need more structural changes.“

Similar concerns were recently raised by Hu Shuli, editor of financial magazine Caixin, who argued in an editorial that “in current circumstances, the stock market will be hard pressed to perform” the role of boosting growth.

End to the disconnection?

The articles published by Xinhua this week have sought to shore up investor confidence in the bull market. But even if predicting the course of China’s economy and stock markets in near term in is uncertain, the outlook for the longer term looks clearer.

“Overall, the economy is not doing great but I don't see a nationwide hard landing. What I see are trouble spots, there could be a regional crisis triggered by very high government debts, or triggered by default by firms which lead to the local government and will lead to a bank failure and that can trigger a little crisis”, says professor Qian.

If the bull market will continue or come to an end now, depends on whether the government will continue to loosen monetary policies that benefit the stock market and feed the bullish retail investors.

“But over the longer term, the government, the regulators are making structural changes to stock market. They are allowing more growth funds from the growth industries to be listed, encouraging institutional investors to grow, and they are gradually opening the capital account so people can invest overseas, in other developing markets.”

“So over a longer run I think you will see an increased connection between the stock market and the real economy.”

【原文链接】Can the stock market rally really boost China’s economy?