You may not know this but things in China are going crazy!
Things are just not looking normal. GDP growth is at 7.9% but that is on the back of a massive decline in exports.
So the big question is...
So what's behind the growth? Is it enough to lift the world from global recession and is it sustainable?
The answer is the huge government stimulus from the Chinese Government.
The growth in China is not being powered by demand from the rest of the world but from government demand and a huge amount of money being lent out.
If you look at some of the numbers, they are simply astounding.
Fixed asset investment is up 33.5% in the first half of 2009. There's been an explosion in bank lending. New loans in June were up 360% from a year earlier.
All that money has to go somewhere and at the moment it seems to be finding a home in real estate or the stockmarket.
The problem with pumping that much money into the economy is that the quality of loans is sub-standard. You only have to look to the sub-prime crisis with its sub-prime loans to see what effect that can potentially have on an economy.
In July, China's sharemarket surpassed Japan's to become the 2nd largest in the world.
Below is a graph of the Shanghai Composite index.
Since the low reached in November 2008, the sharemarket has risen by more than 100%. In 2009 so far, it's up by 90%, making it the best performing sharemarket in the world.
IPO's in China remind me of the good old days of the tech boom when companies on the first day of trading doubled or tripled in value.
This week, Sichuan Expressway tripled on its first day of trading. It managed a gain of 204% – on its first day of trading!
Real estate is rising at such a high rate that even regulators have warned of a bubble forming.
China property prices are up 6.3% from a year ago even though banks need a 40% deposit on loans.
In China's capital, average house prices have jumped 27% from January to June, according to government data.
In the June quarter:
At a time when other major economies around the world are struggling – the US, Europe & Japan – China is showing astronomical growth.
And the China story is not over.
Over the long-term, China will grow at strong rates and will one day be the largest economy in the world. But what else can you expect with a population of 1.3 billion.
In the short term, the signs of overheating are present and we know from history that the longer the bubble, the bigger the mess afterwards will be.
You never know when a bubble will burst but burst they always do, so act with caution.
So if you trade stocks related to commodities or China, trade them will one eye cautiously on the bubble forming in the sharemarket in China.
Follow my sharemarket updates on Twitter: http://twitter.com/belldirect
Happy investing!
Julia Lee Equities Analyst Bell Direct
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