Photo by Ariana Lindquist
Louisa Lim is the Shanghai correspondent for the US broadcaster, National Public Radio and can be followed on Twitter at @limlouisa. Today she talks about the five top stories about speculative bubbles in China in 2009.
Few business stories excite journalists more than those screaming the words “China” and “bubble” in their headlines. And for Shanghaiist readers, here’s a choice selection of the top bubble stories of 2009.
5. The star anise bubble. The first swine-flu-induced bubble of the year was the Chinese spice star anise, popular in stews. This maroon star-shaped pod is actually the active ingredient in the anti-flu drug Tamiflu, so star anise prices can reflect the level of public panic about flu epidemics. Way back in May, I wrote about the star anise bubble, which had been inflated by health minister Chen Zhu suggesting that cooking pork with star anise might combat swine flu.
With swine flu now beginning to take hold — six deaths in Shanghai at latest count — star anise prices are still climbing, tripling in the last two months. Spice-watchers warn that ginger is also up by sixty-percent, while dried chilli prices have doubled. More condiment bubbles in the making, perhaps?
4. The garlic bubble. “Forget gold and silver, invest in garlic”, bellowed the Independent, as it salivated over garlic futures. Old wives’ tales about the efficacy of garlic to prevent swine flu were also behind its extraordinary upwards trajectory, with prices up forty-fold this year, yes forty-fold. Humble garlic outperformed stocks, property and even gold. Through hyperventilating press reports, we learn that Morgan Stanley has an analyst who covers garlic and there’s even a garlic specialist website.
So who’s behind this garlic insanity? None other than those canny business folk from Wenzhou, who Xinhua says have bought 50 million yuan worth of garlic bulbs. For China’s bubble-watchers, that at least should come as no surprise.
3. The stock market bubble. Shanghai’s stock exchange has skyrocketed 66 percent (to Dec 18th close of business) so far this year. Hold on a minute, you ask, haven’t we been here before? Indeed we have.
In a January 2007 report on that bubble, I visited a brokerage, which could easily have been mistaken for an old people’s home, inhabited by scores of old dears, clutching their tea jars and squinting blearily at the electronic ticker board. One elderly investor wearing padded boots, his specs patched with sticky tape, summed up the prevailing sentiment in China towards bubbles, asserting, “If there were no bubble, there’d be no investors.” That pretty much says it all.
This time round some argue there’s only a partial bubble, since the overall price-to-earnings ratios remain reasonable, others say the bubble is worse than in 2007. Some predict the stock market bubble will burst in the first half of next year.
2. Property bubble. Property prices have been galloping upwards, in November rising at their fastest rate in sixteen months, an average growth of 5.7 percent in urban areas since a year before. So fast in fact that the State Council is worried. On Wednesday, new measures were taken to curb speculation.
Dissatisfaction is mounting, with two-thirds of Chinese people complaining that prices are unacceptably high. Shanghai’s beginning to see unusual acts of dissent, the most memorable being a mystery camper who pitched his tent at a metro station adorned with signs of protest.
In any case, government hand-wringing has turned to action. One recent decisive move was to pull a soap opera, “Dwelling Narrowness,” off air due to its discussion on housing prices, corrupt officials and mistresses. How that particular move will deflate any bubble is yet to be explained.
1. The China bubble. Don’t sweat the small stuff; the whole of the Chinese economy is one gigantic bubble, skeptics warn, waiting to plummet down to earth with a stomach-turning thump. “There is no miracle in the Chinese miracle growth, and China will pay a price” Foreign Policy warned back in July, cautioning that the Chinese government’s money-creation, money-lending, money-spending apparatus can only defy gravity for so long.
“It’s a Ponzi scheme whose head is the central bank, and it can print money,” Northwestern University’s Victor Shih told Forbes this month. But as Forbes points out, professional doom-mongers have long warned of this, like Gordon Chang, who wrote The Coming Collapse of China back in 2001.
So far, they’ve not been right. But this one, the naysayers warn, really could be the big one.