Even the most optimistic economist would not have predicted the ongoing boom in the property and stock markets in China. Just eight months away from the lowest ebb of the global financial crisis - the worst since the Great Depression of 1929 - all pessimistic talk of the economy has gone with wind. Now everyone seems to be beaming with confidence in future.
The mainland stock market has so far rebounded more than 75 percent from last year's trough, when the benchmark Shanghai Composite Index touched 1,664. Investors are guessing when it will breach 3,500 as the psychological level of 3,000 is so close within reach.
Prices for developed property in cities such as Beijing, Shanghai, Guangzhou and Shenzhen have skyrocketed back to the level seen in the giddy days of 2007, after being at a discount of 20 to 30 percent in the second half of last year following the burst of the property bubble. A Reuters poll has forecast that housing prices nationwide will continue to rise 10 percent between now and the end of 2010.
Authorities attributed the higher prices to substantial demand, as new and second-hand home trading volumes rose 25 percent in the first six months of the year.
This scenario is familiar. It is reminiscent of the market heyday in the later half of 2007, when college students put their tuition money into stocks, and housemaids and monks joined the long lines at securities brokerages to trade. My father, who made his first and only financial investment - a small sum in a mutual fund - one and half years ago, excitedly told me over the weekend that he had recouped his losses of almost 40 percent. He said he was determined to hold on to the fund until he made a "moderate" profit.
That's the alarm bell - when the average Joes are enthusiastic about the market - of the mania approaching danger level.
I am not alone in this unease over market euphoria.
"Sixty percent of the listed firms forecast losses in their to-be-released interim report, and we are talking about a bullish market. Isn't it insane?" asked Hou Ning, an independent financial analyst.
"The most timid ... are jumping in now, in droves. When the least informed and most credulous are in the market, it usually indicates market peaking", warned Andy Xie, a Shanghai-based independent economist.
He cited the return of "animal spirits" as the driving force behind the market craze.
"After living in fear for over a year, they just couldn't sit around anymore and decided to inch back", he wrote in his blog.
But, from where is the money coming? The painful fact is that the current boom is fueled by the fiscal stimulus and bank lending.
China's total new yuan loans have been growing since the beginning of 2009 and may touch 6.5 trillion yuan in the first half, beating the 5-trillion-yuan target for the whole year. Many economists foresee lending for the whole of 2009 exceeding 8 trillion yuan compared to 4.5 trillion yuan in 2008.
Where have the new loans gone? Andy Xie believes the borrowings are being channeled into stock and asset market speculation, which "leads to inflation without boosting the economy".
The lending surge can hurt the economy as private firms withdraw from the real economy into the virtual one. When private companies don't expand, a recovery is out of the question.
Actually China's small and medium enterprises (SMEs) - which account for 99 percent of the country's enterprises and are considered the cornerstone of the economy - are suffering from the coldest winter.
According to the latest report released by the Chinese Academy of Social Sciences, 40 percent of the SMEs have gone bankrupt in the recession, 40 percent are struggling to survive and only 20 percent have survived unscathed.
This is dangerous because SMEs contribute to 60 percent of GDP growth and 50 percent of the national coffers; and, they account for 75 percent of urban employment.
There are more ominous figures that may be noted.
China's total power generation has continued to fall since late 2008, signaling continuous national economic slowdown amid the global downturn.
The latest figures show that China's CPI and PPI in May declined 1.4 percent and 7.2 percent respectively year on year, suggesting that the country's economy is still on a downtrend.
Globally, the US economy declined by an estimated 2.9 percent in the second quarter after contracting 1.6 percent in the first. Japan's economy shrank at an annual pace of 14.2 percent in the January-March period, a record for the world's second biggest economy. The poor performance of China's top two trading partners augurs ill for the country's growth, which relies heavily on exports.
Even the most sumptuous banquet must come to an end. A correction is imminent in the market because it does not have adequate support in the real economy. For those who are still enjoying the party, the alarm bells may be irksome. But market rules can never be flouted. Those who live by the market shall perish by the market.
(China Daily 07/01/2009 page8)