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Debate on bulls and bears froths over

By Xin Zhiming (China Daily)
Updated: 2007-02-08 09:31

Without froth, beer would no longer be beer; similarly, the stock market must have some bubbles, some economists hold.

This has become the central point of a fierce debate in the Chinese stock market.

Cheng Siwei, vice-chairman of the Standing Committee of the National People's Congress, told the Financial Times in late January that about 70 percent of domestic A-share companies were not worth investing in, and urged individual investors to make rational decisions even in a bull market to ward off risks posed by market bubbles.

Earlier, US investment guru Jim Rogers, who co-founded the Quantum Fund with billionaire financier George Soros, said on CCTV that many Chinese listed companies are overvalued and a bubble was forming.

The markets were bullish when they made the comments but on the last day of January, the domestic A-share market suffered a 144 point, or 7.2 percent, tumble and. Cheng was held by many as the major culprit for the fall.

Liu Jipeng, professor at Capital University of Economics and Business, tried to refute Cheng in early February. Liu, who also chairs a financial consulting company, said it is normal for any market to have bubbles.

Chinese economic reforms have been successful, Liu said, a fact that contradicts Cheng's claim that most of the listed companies are financially substandard.

He also accused Cheng of not using clear and verifiable standards to back up his claim.

Cheng, also a senior economist, agreed that bubbles are an intrinsic quality of a stock market, but they should not be allowed to accumulate to a dangerous level, which could lead to a crisis.

He said his conclusion that about 70 percent of listed companies are below par is based on his study of the 2005 figures of those companies.

The Chinese stock market has risen by about 130 percent in 2006; and analysts said Cheng and Rogers may just be scapegoats for the recent corrections.

"After all, the market has risen too much, so it needs to find an excuse to sell," said Wang Kai, an investment strategist from CITIC Securities.