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Rapid Rise of Chinese Stocks Sparks Alarm


Alarm is growing in Asia over the rapid rise of China's stock market. As VOA's Heda Bayron reports from Hong Kong, bankers and business executives are warning it may be a bubble waiting to burst.

Shanghai's stock market has risen about 50 percent since the start of the year - making it the best performing market in Asia. The Shanghai market's main stock index has recently topped 4,000 points, a record.

But bankers and business leaders are increasingly worried that stock prices are rising too fast.

Hong Kong's richest man, the influential chairman of property giant Cheung Kong Holdings, Li Ka-shing has said there is a "bubble" phenomenon in the Chinese stock market. He warned Hong Kong investors to be cautious - because bubbles collapse.

The top economist for Standard Chartered Bank in Hong Kong, Tai Hui, also has weighed in with a warning this week.

Tai says some correction or fall in Chinese stock prices is inevitable given the record highs reached in recent weeks.

And on Friday, Peter Wong, executive director of HSBC, one of the biggest foreign banks operating in China, called the concern about the market "genuine". He warns that any significant drop in the Chinese stock market would be felt heavily in Hong Kong. Mainland companies make up half of the Hong Kong's stock market's value.

China's economy has been roaring ahead this year, despite efforts to cool it down to avoid the risk of high inflation or a collapse of asset prices.

The economy expanded more than 11 percent in the first three months of the year. On Friday, China's central bank raised interest rates for the fourth time in a year. The rate on a one-year loan went up 0.18 percentage point, to 3.06 percent. In addition, the central bank on Friday raised the bank reserve ratio or the amount of money banks must keep as capital - the eighth such move in the past year.

But the measures appear to have little effect. It has not stopped hundreds of thousands of new investors from opening trading accounts. The government fears many of those investors could face painful losses if the market gains end, which could lead to unrest in some areas.

On Friday, the Shanghai Composite Index fell about half a percent to 4,030.

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