Since their creation, Chinese stock markets have generally gone up, partly on the back of a government-sanctioned bull run, and partly because there weren't many alternatives for the mostly retail investors to spend their money on.
But the stock markets have been drifting downward for the past two years, despite an increasingly optimistic overall growth story. The Shanghai A-share index, for example, was at 2341 points in June 2001, it's high point for the past 24 months, compared to barely over 1300 at the beginning of this month, its low point for the same period.
All the macro indicators look strong, meaning the market's secular downward trend is not likely to turn into a crash.
According to a recent research report by CSFB exports grew 30% y-on-y, leading to a massive current account surplus. Domestic consumption, crucially, is robust, with retail sales growth at 9.1% y-on-y in November. Consumption growth, admittedly from a low base, has consistently been several percentage points higher than the rest of Asia for most the past decade, at around 10% y-on-y. CSFB sees GDP growth of 8.3% this year.
It's noteworthy that this time around, there is far less carping from foreign investors, journalists and academics about the validity of China's economic performance.
That's partly due to the appearance in the US markets of all the woes that were previously thought the exclusive preserve of Asian capitalism: lousy figures, corrupt officials and over-investment. In contrast, China doesn't look as bad - to say the least.
So what's the background to China's slumping stock markets, and will it have serious repercussions?
The big theme for the turn away from the markets is the emergence of a Chinese middle class. That emergence is reflected in booming car sales.
Car buying is the favourite new activity. Whereas cars, often top-of -the range Mercedes and GM products have long been bought by companies and ministries, Mr and Mrs Wang have recently been shelling out for a new range of cheap to mid-priced models, helped by a whole new industry based around consumer lending. China's car sales rose a stunning 58% y-on-y during the first ten months of 2002, and for the first time, with the bulk of sales going to private buyers.
That surge has been helped by China's entry to the World Trade Organization, driving down car prices by 20-50%.
The other reason for this consumer binge is the inexorable rise in China's per capita GDP, set to break $1000 this year.
In reality, that average figure is dragged down by the still very low figures in the countryside, were bitter disputes concerning land ownership and usage rights between peasants and cadres are seriously retarding growth. But the major cities, many of them the size of a small European country, are seeing a much stronger rise in GDP per capita. People in middle class jobs can often make a $1000 per month, rather than per year.
As new high-price consumer good become available through increasing affluence and exciting imports, there's been a logical retreat from the stock markets. Last year, the growth of new trading accounts on the Shenzhen and Shanghai exchanges was only around 3.5% on average, the lowest on record.
Just as consumers start experimenting with western-style consumerism they are getting increasingly sceptical about China's stock markets.
That's because these have their intrinsic problems. Although some 1200 companies are already listed, another 1000 companies are waiting to list. Many of these are relatively small state-owned enterprises pushed forward by their local governments, and some private firms. Priority will go to the insurance companies, airlines, oil and power companies, as well as commercial banks - both state-owned and shareholding - and the tail end of the telecom sector. All these companies are the focus of government reforms and re-capitalization, vital to ensure that China's national champions are sufficiently strong to cope with foreign competition in the wake of China's entry to WTO. In either case, the market feels threatened by an oversupply of shares. Average price/earnings ratios are already down from their of high of sixty to their current level of 40, and no one's ruling out further declines.
