Searching For Reasons For China's New Bear Market

The economy in China is allegedly getting better, but the stock market is getting much worse. It is now down 20% from its 2009 peak which, based on the Wall St. lexicon, is a bear market.

The Chinese may see something is their markets that is not readily apparent to the rest of the world, at least not as apparent as it may be to the Chinese. The most easy target is the nation’s $585 billion stimulus package. It is being blamed for bubbles in real estate and equities values.

The more likely cause is that it has dawned on the Chinese that a rebound in the country’s exports is much further away than many experts had imagined a month or two ago. There were signs that the recession in the US is ending and that it is ending even faster in Europe’s largest economies.

The “end” to the recession in the West may end up being a false promise. Concerns that consumer spending, deeply damaged by unemployment, may not begin to mend in any significant way until well into 2010 have begun to emerge among economists. The US economy will need to rely on exports to help it recover. Some of those exports will compete with goods China is selling to the rest of the world. That could hurt the economy of the world’s most populous nation even more.

China refuses to give accurate figures on unemployment within its own borders, or the government does not have the means to provide them due to the large portion of the population that still lives in rural areas. Outsiders suspect that joblessness among the middle class, mostly factory workers, is up sharply. Many facilities have been shut down due to lack of demand from overseas.

China claimed GDP growth over well over 7% in the second quarter and senior officials said they expect the second half of 2009 to be even better. There has been s suspicion for years that China inflates its number to make the central government look good. The Chinese economy may be in more trouble than most people know. At least that is what the stock market is hinting.

Douglas A. McIntyre