Is the Chinese stock market independent from the Chinese economy?

May 31st, 2007

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In our previous article, Can the bursting of Chinese bubble affect US long-term interest rates?, we mentioned that the bursting of the Chinese stock market can have tangible consequences. However, the general consensus among economists is that a crash in the Chinese stock market will have no real demand on the general Chinese economy, let alone the world economy. As this article in Bloomberg said,

They say China’s economy shows little correlation with its stock market, foreigners are mostly excluded from owning shares and Chinese participation is limited to less than 10 percent of the population, reducing the effect of a bursting bubble.

At this point in time, it may be true. But if the bubble keeps on growing at this rate, when will it no longer be true?