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Marketplace Morning Report

Shanghai boom — or bubble?

Scott Tong May 9, 2007
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TEXT OF INTERVIEW

LISA NAPOLI: An astonishing rise for the stock market in Shanghai today. It topped 4,000 just before closing a bit under that. The Chinese market’s risen 50 percent this year after doubling over the past year. I talked this morning to our correspondent Scott Tong in Shanghai about whether they’re in for a bubble.

SCOTT TONG: Well plenty of officials in the government are worried. On Sunday a governor of the central bank was asked if he was worried about a bubble and he came out and he said yes. Well today the investors in china gave a great big ‘whatever’ to these leaders because it went back up over the psychological 4,000 mark.

NAPOLI: Why are people defying the government on this one?

TONG: Well there are a lot of ingredients to what’s been happening in the Chinese stock market. I mean it’s just been going up for so long now. You have Chinese people being giant savers in the first place, they don’t get good returns at the bank so they have to put their money somewhere, and then you’ve got everybody talking about making money on the stock market. So there’s this exuberance is the clichA©, but there’s this excitement. A few weeks back I went to one of these brokerage houses where a lot of people are there and it was a day after a big fall, but it was full because everybody thought it was a buying opportunity. And I asked a guy, ‘Are you worried about what’s happening?’ and he said, ‘Well it’s kind of like Mahjong.’ It’s like that game, it’s like a card game. You lose but then you’re gonna win.

NAPOLI: Hmm everybody’s got the fever. What’s a bad news scenario in all of this Scott?

TONG: Well the bad news is if this is indeed a giant bubble and there’s a burst. If that’s right, if this is a bubble, the bad news scenario is a lot of people who’ve just started investing in stock market bought at the top, borrowed from their friends, took money out of their savings accounts, put it in the market and then lose it all. And then they panic. And in China who knows what happens when millions, hundreds of millions of people panic.

NAPOLI: So everybody’s gambling, the regular guy’s getting into the game, what’s the potential impact overseas if something goes wrong, if the bubble bursts there?

TONG: Well the Chinese stock market is quite insulated from the global stock markets. At the same time, there can be a lot of indirect effects obviously depending on how this goes. If a lot of the Chinese companies that have been raising all this money suddenly have less cash to buy the bulldozers, the factory parts, the raw materials, the timber, the iron, then that’s a longer conversation about the whole China machine slowing down.

NAPOLI: That’s our Scott Tong reporting from Shanghai.

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