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Publisher's Notes: Rock, Paper, Scissors

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Dear Friends:

I wish I could publish this editorial upside down, because that is how I am feeling about the China market overall, no matter the exchange. This week I have learned a lot about the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) (in part, sadly, that the CSRC English site is not up to date). I think the executives at those exchanges and the leaders of the Communist Party are probably also on a learning curve. (Smiley Face Here.)

That said, as I write this the main headline on The Wall Street Journal online is: “China Stocks Rebounded for Biggest Gain in Six Years.” You probably will have read that too by the time you read this.

Of course, me being a pessimistic optimist, I thought, “Hmm, what’s behind that?” I was thinking maybe the China government itself bought up large blocks of shares. China Daily USA reported that on Wednesday the Chinese securities regulator encouraged major shareholders in companies to buy up more shares. As well, they encouraged management to buy more of their own stock. It lifted some rules that precluded them from doing so prior.

In a different China Daily article it reported that brokerages and executives from 25 mutual funds, as well as social security fund vowed to buy stocks. So maybe, altogether, those were instruments for the correction of the correction. We shall see if it sticks by the time we wake up in the West tomorrow.

Here’s some of what I have learned and heard this week in the Chinasphere of pundits and new sources, not all of which I can confirm:
Earlier this year the China government encouraged people to buy shares on the exchanges, with an emphasis on SOEs.
In this downturn, the exchanges indices lost one-third of their values.
That said, the markets went up 100 percent over the year.
Individual investors outrank institutional investors on the exchanges by a long shot. (One pundit put it at 80/20 percent, individual/institutional).
Individual investors had been tapping their margins to buy stock (rarely a good thing).

It was widely reported that half of the Chinese stocks suspended trading at some point this week.
IPOs were postponed
What I see from the efforts to save the China exchanges is a game of “Rock, Paper, Scissors” played in the dark. We will see…

We will also see what happens with the deluge of companies “Going Private” on the US markets with the idea to go public again on the China exchanges.
DangDang, YY, and China Nepster were added to that list this week.

News below. Have a good weekend.

Janet Stites
Publisher & Editor
China Business Knowledge (CBK)