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chollida1

China unfortunately created stock market but doesn't have the requisite pieces to allow one to operate properly.

For a fully functioning stock market you need:

- capital, which they have

- speculators, to make trades happen, they have these

- transparency in how your market works, or atlest the appearance that the market is fair to all

- and you need stoggy old buy/hold/long only investors. China is missing these.

In most markets the latter is done by ETF retirement investment and pension plans who have to invest 100's of billions of dollars each year.

The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US.

Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought.

As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years".

China is also loosing alot of money each month trying to support the yuan. I saw a credible estimate of about 100 billion a month since October.

View on HN

Doubtful about the top market; China has a 20 year deflationary depression ahead of them.

1-2% gdp growth http://www.barrons.com/articles/anne-stevenson-yang-why-xi-j...

280% gdp/debt ratio http://www.forbes.com/sites/kenrapoza/2015/05/09/chinas-tota...

bankrupt shadow banks http://www.ft.com/cms/s/0/06cc9b9c-44c4-11e5-b3b2-1672f71080...

bankrupt state commodity firms http://www.bloomberg.com/news/articles/2015-10-14/the-next-c...

only a trillion reserve left http://www.businessinsider.com/china-burned-through-108b-in-...

$850 Billion Left China So Far This Year http://www.theepochtimes.com/n3/1882874-as-much-as-850b-left...

Manufacturing moving out of China http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made...

Coupled with China's lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising US interest rates...you get the idea

> Coupled with lack of global consumer brands, corruption, pollution, demographics issues, global slowdown, carry trade unwind, rising us interest rates...

You don't need global consumer brands when your country is the size of China. They have 15% of the world's population and speak a language that few outside the country can speak and even fewer can read: nobody else is going to come in and take those customers except Chinese companies. Corruption is being cleaned up; but it's still a real problem at the local level. Again, pollution is a huge problem but China is betting the farm on "clean" energy tech and will be the energy leaders of the world in 20 years. If (or when) they figure it out, they're the only ones with the manufacturing skill and capacity to mass-produce.

The truth is, we've never seen what happens when a large country "awakens" in the age of globalization. Macroeconomic theory is largely based on the import/export balance, which is increasingly less important as borders become less meaningful (and import/export controls become increasingly difficult to enforce).

I have a feeling that China will surprise us - despite the fact that they will have negative population growth over the next few decades and an aging population, the fact that they are actively moving subsistence farmers to the cities may stall the effect of a shrinking population with the added consumption / demand from turning poor farmers into urban consumers. Their aging population is also accustomed to a lower standard of living than the up-and-coming generation. Population deflation has been especially damaging to Japan because it hit them after they had become a heavily industrialized country. Despite the huge progress China has made, hundreds of millions of people still live in poor farming villages. That's a source of potential growth that I expect the Chinese government to tap strategically.

This is my feeling too, if anything China is about to breakout and become wealthier and more powerful than it already is. Good work ethic + common sense is a wonderful combination. The "west" largely lacks the later, while the rest of the world (except for a few countries, including China) lacks the former.

You are being downvoted because this is a really poor comment. "The West" lacks "common sense"? "The rest of the world except China" lacks "work ethic"? What?

good points. let's see...

- Chinese companies are the only ones that can serve Chinese customers: Yum brands (KFC, McDonald) 7000 restaurants. Starbucks 1600 stores in China. 7-eleven 2000 stores in China. H&M. BMW. Mercedez. Apple. Microsoft. etc. All top brands, and command a higher price point/margin than local competitors if any. Meanwhile, none of the Chinese brands can even get a foothold outside China.

- Clean energy in 20 years: in 20 years, most of the Chinese rich will have already left

- large migration from rural to urban: there's no jobs waiting for these rural farmers. Therefore they cannot generate value; they're merely drags on the system. In year 2016, with manual jobs being automated, a body is no longer an asset but a liability. The person would need to have the knowledge/skills to compete for global job scarcity. And Chinese citizens aren't trained in English to compete for global knowledge worker jobs.

Yes, Yum brands has about 7000 restaurants in China — but that's out of about 3 million restaurants in total.

3 million? According to http://www.yum.com/investors/faqs.asp they have "41,000 restaurants in more than 125 countries and territories" - meaning about 17% of their stores are in China.

I think parent means ~3 million restaurants in China, not 3 million yum yum in the world.

>> "I have a feeling that China will surprise us"

>> "And Chinese citizens aren't trained in English to compete for global knowledge worker jobs."

There you go!

Edit: To clarify, I am supposing that perhaps more English-speaking knowledge workers would be trained in the future.

> Edit: To clarify, I am supposing that perhaps more English-speaking knowledge workers would be trained in the future.

As a side effect of US immigration policy and the hot job market for knowledge workers over the last 20 years, an extremely disproportionate number of PhD candidates in science and business at US universities are Chinese nationals. So it's already happening -- and we're the ones doing it.

I think China is aware that Mandarin will not become a global language of trade -- it's simply too difficult to learn. But this likely suits the government just fine as it funnels all business deals through a (relatively) small group of people who are fluent in Mandarin and another language. And given the difficulty of learning to read Mandarin as opposed to say, French or English, I suspect almost all of those people will be Chinese.

Alot of Chinese nationals are staying put in silicon valley. ALOT.

The immigration policy is deliberate, from a 1989 NSF memo:

"A growing influx of foreign PhD's into U.S. labor markets will hold down the level of PhD salaries to the extent that foreign students are attracted to U.S. doctoral programs as a way of immigrating to the U.S.. A related point is that for this group the PhD salary premium is much higher [than it is for Americans], because it is based on BS-level pay in students' home nations versus PhD-level pay in the U.S. . "

Basically the government wanted to allow more foreign students in to PhD programs to suppress PhD wages. They estimated without any policy changes, computer science Phd wages would be over 100k by the year 2000...

Bottom line, the Chinese nationals in your classroom and in your office are the result of a concerted effort by the US government and the tech industry to suppress wages.

One could also say that it is to ensure an adequate supply of reasonably-priced high-end knowledge workers.

We have to be very careful here: On the one hand, if talent is too restricted, prices will rise, but so will opportunity costs, suppressing R&D, or that R&D might simply move to where the talent is.

This isn't a zero sum game.

Meh, I don't buy it. If prices rise then supply will meet the demand and resources will be allocated accordingly. Do you have any numbers to show that as we've seen a decrease in wages for STEM professions that we've also benefited from an increase in R&D? And not actually an accumulation of wealth by the wealthy industry stewards with all time high corporate profits?

The average CS PhD is what? 36k/yr? That is only attractive to international students who place a lot of value in being on US soil. The smart domestic students will avoid PhD programs and CS altogether, which is precisely what the industry wants, the self full filling prophecy of the "talent shortage".

Numbers? America has always been an immigrant country, from its very founding (even the Ameri-indians crossed a bridge to get here). There is nothing to compare against; high-end STEM has never been dominated by American-only talent. So all we have is world supply vs. world demand to go on, and what can we tell from that?

I made about $1300/month as a PhD student at the end of the 90s/early 00s. But in exchange, I got to do the research I wanted to, it was a fair exchange for me. If you are in it just for the money, I guess it doesn't make much sense, but then you don't need a PhD anyways. I'm also one of the odd balls who is an American CS PhD graduate working for an American company in...China. Turns out, those high-end research jobs really can move from the US to another country (before China, I was in Switzerland)!

> If prices rise then supply will meet the demand and resources will be allocated accordingly.

CS grads already easily make the most money out of all STEM graduates except maybe medicine which requires a much larger time/money investment.

Where exactly do you see the extra supply coming from if, say, CS wages went up another 50%? Who would be incentivized to study CS who isn't already sufficiently incentivized today?

I think you missed the first point... the other comment never states that only Chinese firms can serve Chinese customers at all. He/she was more in agreeance with your point about chinese firms not needing to operate outside of china because their domestic market is large enough to serve their needs. Why leave when you have a 1bn+ person market in front of you?

I don't think chinese firms can't get a foothold abroad (see Huawei), it's just that they have less desire to.

he said 'nobody else is going to come in and take those customers except Chinese companies'

And he's not far off... Yum is even spinning off its Chinese operations into a separate company that will reside entirely in China.

http://www.wsj.com/articles/yum-brands-to-spin-off-china-bus...

Apple is the biggest success story, but that could change literally overnight. It's a big risk to have large foreign operations in China.

The Chinese government couldn't cut off Apple at this point. The middle class are too bought in as users/owners, the rich make too much money from being suppliers, too many poor people have jobs depending on being Apple suppliers.

They would have massive civil unrest.

Massive civil unrest because Apple is kicked out of China? Ummm, there wouldn't be massive civil unrest in Palo Alto if Apple was kicked out town. People buying Apple products just don't do massive civil unrest. They'd bitch on Twitter (or Weibo/etc), but riots in the streets because you can't buy an iPhone? I'm as big an Apple fan as the next guy, but that just isn't credible.

I imagine most of occupy movement protesters were iphone demographics? Same for russian winter protests, same for ukrainian revolution.

> I don't think chinese firms can't get a foothold abroad (see Huawei), it's just that they have less desire to.

They not only have a desire but they also can get a foothold (look at how well many of their cheap phone brands are doing in developing countries). However, they do have a limited ability to do so when it comes to developed countries. Which isn't that bad since most of the big brands are manufactured inside their borders anyways. The calculus looks better for them than for, say, the UK.

I'm not sure that a 7-eleven per half million Chinese people really diminishes the potential for domestic firms to grow in their continent-sized domestic market. And that's even without protectionism and ownership rules that encourage Chinese franchises of foreign companies to be 50/50 joint ventures.

Think Lenovo is doing a lot better in overseas markets than Yum Brands in Chinese markets...

Most leading players in China’s CVS sector are regionally based. Currently, there is no national leader. According to UBS Investment , top CVS players in Guangzhou, Chengdu and Shenzhen have a relatively high market share. Meiyijia, the market leader in Guangdong province, accounted for more than 60% of Shenzhen’s market share and 30% in Guangzhou. Hongqi, the market leader in Sichuan province, accounted for Exhibit 8: Market leaders and respective market share in selected cities Source: UBS Investment. October 29, 2013. “Report on Chengdu Hongqi Chainstore Co., Ltd.” Chengdu 43.6% Market leader; Hongqi Beijing 23.8% Market leader; Easy Joy Shanghai 17.9% Market leader; Quik Shenzhen 61.3% Market leader; Meiyijia Guangzhou 30.0% Market leader; Meiyija Chongqing 26.6% Market leader; Chongkelong 43.6% of Chengdu’s market share. Meanwhile, the market in Chongqing, Beijing and Shanghai is somewhat fragmented - Chongkelong has a 26.6% market share in Chongqing, while Easy Joy has a 23.8% market share in Beijing; Quik has a 17.9% market share in Shanghai.

> Chinese companies are the only ones that can serve Chinese customers

I don't agree with this; but Chinese companies are in a much better position to do so, and China is where the growth is.

> Clean energy in 20 years: in 20 years, most of the Chinese rich will have already left

A bit hyperbolic; but we already have a global economy. Foreign companies will continue to invest in China (both in companies and in their own projects) regardless of what the Chinese wealthy do. There are 1.2 billion people in China. Most don't brush their teeth. Think how much more toothpaste P&G could sell there if people became even moderately wealthy and more concerned about dental hygiene.

> large migration from rural to urban: there's no jobs waiting for these rural farmers.

As long as the Chinese government is willing to sponsor public works projects, there will always be jobs. And China is not unique in the transition from a manual labor to a knowledge labor economy: they're actually probably in a better position than most because they can benefit from explosive growth whenever they choose to. And don't forget that the Chinese population is aging rapidly: there will be more people exiting the workforce through retirement and death than new entrants into the workforce. Ensuring need and training match up is a problem, but I don't think any government has solved that one; so I wouldn't call it a huge impediment to their growth.

>I don't agree with this;

No, that was your point. You said quote "nobody else is going to come in and take those customers except Chinese companies"

>Foreign companies will continue to invest in China

Sure they will, but it will be dramatically smaller. $850 billion a year outflow makes it so

>if people became even moderately wealthy

IF. These rural farmers have to compete with cheaper workforces in southeast Asia. And english speaking knowledge workers worldwide.

>As long as the Chinese government is willing to sponsor public works projects

The government did that already since 2008. All they got were 300% gdp/debt ratio and badly constructed roads/buildings. They can't borrow anymore money to do that, not with the carry trade unwinding and default rates going up.

> All they got were 300% gdp/debt ratio and badly constructed roads/buildings.

This is too hyperbolic. They got airports and a large network of trains and high-speed trains. They also got the internet, electricity and smart phones all of which are still relatively new to China. The impression I got when I lived there was that the past decade has been all about developing infrastructure. Now there is a young generation growing up with more education, more technology and more opportunity than ever. China is a huge, complex country early in its development and it is hard to generalize about it.

Have you ever been in China?

1. KFC? McD? Yes, they have this. But they also have their own chains. That you did not hear about them, does not mean they don't exist. I actually really like the (Japanese) chain Yoshinoya here but there are enough Chinese alternatives. Starbucks? Yes, they have this. But they have their (I assume) own chains (I assume for example Holyland and 85 degree are Chinese brands).

Technology? Yes, the rich kids love Apple products. But they have Haier, huawei, Hisense, Xiaomi. Your ignorance won't make this brands disappear. And if you don't want to buy them, there are billions of people and the world that will. And don't forget. "Made in Germany" was a label forced upon products by England to suggest "inferior technology". How did this turn out?

Instead of Paypal they use alipay, instead of Whatsup they use the much superior WeChat. Yet, Baidu is very inferior to google. They have Alibaba and Taobao.

Yes, they have their BMW, Mercedes and VW. But they also have their Chinese brands like BYD etc.

They may have a recession/depression for some years but it won't stop the rise of the East. The world GDP has already shifted back to the East after it shifted to the west due to the industrual revolution. The economic future lies in the Eurasian continent with Russia/CIS, India and China. Europe has two options - associate with the US or with the Eurasian continent. The US is very eager to prevent this (e.g. TTIP). Don't forget, Chinese think very strategically and long term.

The long term problems are likely different. Besides over aging (which can be seen in the West too), believe of cultural superiority. While it has it advantages not to be flooded with criminal "refugees" like Germany, the closed society in China also keeps talent out. Most superpowers (Rome, UK, USA) were very open for talent and it was easy or at least possible to become a citizen. This is a problem. Corruption? This can be fixed. But the deeper tendency to be dishonest is likely the cultural problem. Similar to Arabs, Chinese don't trust each other.

> Have you ever been in China?

Yes, I've been to China. Btw, have you ever read the thread? I was responding to OP's statement 'nobody else is going to come in and take those customers except Chinese companies'

> The world GDP has already shifted back to the East after it shifted to the west due to the industrual revolution. The economic future lies in the Eurasian continent with Russia/CIS, India and China.

Yeah that like sounds something out of Zerohedge. You're gonna have to provide some evidence.

> I was responding to OP's statement 'nobody else is going to come in and take those customers except Chinese companies'

But you haven't refuted that statement. You merely pointed out there is a tiny amount of "western" companies operating in China, with no numbers on the ratio of foreign to local operations. Which would be the real way to refute that point.

There are foreign brands sniffing around the edges. But mostly, Chinese spend their money IN china. The car companies are a good counter example, but that's mainly because China didn't have the Car manufacturing expertise in house, I believe this is changing. McDonalds and KFC are a joke in China for every one of them you see, there will be at least 10 chinese fast food competitors with more customers. (Turns out Chinese have a preference for Chinese food - Crazy huh?)

iPhone still only hold about a 30% market share. I think that'll change too, as Huawei, and Xiaomi have become significantly more competitive and are significantly cheaper.

This is common knowledge. Google the numbers. I actually tried to include a graphic that I saw once but I was not able to track it down anymore. I was basically a world map with a ball/point that showed movement of world GDP. This ball was far on the east before the industrial revolution since much more people lived in Asia than in Europe and they also had more efficient agriculture. With America becoming populated mainly by European and with the industrial revolution the percent of GDP product by the Western world shifted to the west. At one point this trend decelerated, then stopped, then reversed and then accelerated (towards the east). This should not come as a surprise.

Actually, the picture was similar (but better designed) to this one: https://dannyquah.wordpress.com/2012/05/17/how-we-miss-the-g...

I don't think that graphic you're thinking of shows "world GDP" so much as "the centre of gravity of GDP across the planet": These are two quite different things. In any case, you might have in mind a map by McKinsey Global Institute in their "Urban World" 2012 report.

I'd disagree that that depiction was better designed than http://www.dannyquah.com/Quilled/Output/2010.09.27-Danny.Qua... or the animation http://www.dannyquah.com/Quilled/Output/2010.08-Danny.Quah-w... It depends on what you're trying to understand. For what you describe, I personally don't like so much the McKinsey graphic. This is discussed in Section 8.3 (in Chapter 8) of my draft manuscript http://bit.ly/1KeSicU on Ordering the World.

Ah, you are the maker of the graphic. Well, I vaguely remember the graphic I saw.

But as a feedback

- What are the two extremes? I don't know the end points in your graphic.

- You graphic does not show how the center shifted from the East to the west after the industrial revolution. Because from 1500 to 2010 you actually have either hard data or past estimates.

- I would have put the distance of the dots (years) and a color legend in the picture.

- I am to stupid to understand what the different sized arrows mean in the graphic. What information do they provide?

> You don't need global consumer brands when your country is the size of China.

Need? I guess not. But I think the point is that those things manifest themselves in a healthy market/economy/society, a healthy innovative market. If you're not advancing technologically, then you have no hope for your future. And that's what companies like Samsung, Toshiba, and Sony all do (in the electronics industry). They innovate. That innovation breeds more innovation and lays the groundwork/framework for future innovation.

That's China's biggest problem right now; they relied so much on theft of IP that they lack the infrastructure to innovate on their own. They're stuck on a ledge and can't go any higher without either technological handouts or stealing more IPs. Unfortunately for China, companies are becoming much better at protecting themselves having learned from past mistakes.

China is essentially the world's factory. That's all, nothing more, nothing less. That's all they will ever be until they climb down from their ledge and start climbing up again (starting over from scratch).

> They have 15% of the world's population

And? not sure how this is relevant. If anything, it's even more incriminating; they have that many people but so little to show for it. So little genius, so little innovation, so little advancement... It's proof that their current social, economic and political system has been a failure. They should be trouncing everyone. But they aren't.

> Corruption is being cleaned up

Their "corruption clean-up" has been just lip service. You'll note it was published first from China's own government-ran news agencies (Xinhua).

If you look at transparency international's corruption index (here: https://www.transparency.org/cpi2014/results) you'll see that they actually dropped 20 places from 2013 to 2014. Their corruption actually got worse, not better.

> we've never seen what happens when a large country "awakens" in the age of globalization.

Unfortunately, China's a long way from awakening.

> Need? I guess not. But I think the point is that those things manifest themselves in a healthy market/economy/society, a healthy innovative market. If you're not advancing technologically, then you have no hope for your future. And that's what companies like Samsung, Toshiba, and Sony all do (in the electronics industry). They innovate. That innovation breeds more innovation and lays the groundwork/framework for future innovation.

China has been quite innovative in the manufacturing arena. You know all those neat laser drills and 6 axis CNCs that mass-produce all the tech products we have? They were probably designed in the US; but the Chinese are the ones who know how to organize them to churn out 100 million iPhones.

> They should be trouncing everyone. But they aren't.

Look at your history; China was reeling from the collapse of its imperial government (largely as a result of the meddling of European powers) in the early 20th century. They were then invaded by Japan (which has always been a military-focused country, and thus had a very strong military when Western powers came calling and was able to resist colonialization). After its infrastructure was pillaged by a 15-year Japanese occupation, there was a power vacuum and a decade-long civil war.

China was kept in the stone age until basically 1954 by the meddling of outsiders. For all the awful, misguided things Mao did, he and the subsequent leaders of China set the country on a path for rapid modernization - modernization at all costs.

> Their "corruption clean-up" has been just lip service.

I don't know about that. The Chinese government is acutely aware that they need foreign investment in China, and that becomes very difficult to do when there are "hidden taxes" in the form of corruption.

> Unfortunately, China's a long way from awakening.

If that's true, then that's pretty scary given where they are now vs. 20 years ago.

That's interesting that you know this depression is going to happen. How much money have you placed on this certainty? There's a few different ways you can short the Chinese economy. You'd be crazy not to if this is as sure a thing as you say.

How would you recommend shorting China? It does sound like a pretty safe bet.

ProShares provides a convenient way to get short exposure to large Chinese stocks that trade in Hong Kong (you buy the ETF to get short exposure): http://finance.yahoo.com/q?s=YXI

Well... This particular form of shorting China sounds really dangerous. Big firms tend to be the last to fail, and ETFs have a lot of strange behaviors; I'm thinking more in terms of looking for companies that will become more prosperous as their Chinese competition falls.

'The coming collapse of China' has been predicted for a couple of decades now.

Don't forget, the market can stay irrational longer than you can stay solvent

Especially if one "shorts" the Chinese economy by buying and holding leveraged inverse ETFs! A sure way to lose your bet, no matter the outcome.

(Background for non-investors: leveraged ETFs are intended to replicate intraday performance, and a long-term buy-and-hold strategy is always expected to trend toward 0)

Sorry, I still don’t get it. Can you explain it in simpler terms?

ETFs and the financial-services industry in general are the real world's magic system. I personally don't want anything to do with them...

(For one thing, ETFs like to buy and sell whole sectors of the market: if Volkswagen has a problem, they sell Toyota. This strikes me as a good way to lose your money -- while not really understanding what's going on.)

A Leveraged ETF is designed to amplify (and possibly invert) the daily returns relative to some benchmark. So for example, SPY is the "normal" ETF which tracks the S&P 500 index. UPRO is a triple-leveraged ETF which is designed to get 3x the daily returns (gains or losses) of the S&P 500, using the same amount of capital. Some other ETFs are leveraged and inverse, meaning they will gain value when the index loses value, and vice-versa. In general, day-trading these ETFs is a way for small traders to increase the leverage on their bet. However, there is always some sort of "friction" with using leverage in this way, which causes the all leveraged ETFs to slowly lose value over time. Intuitively, you could say that you taking out a tiny loan in order to increase your bet, and the friction is just interest payments. Maybe somebody else can explain some more technical details, if you are interested (I recommend financial blogs such as Kid Dynamite's on these types of topics).

Here are some examples of levered ETFs... sorry, it seems most web UIs are interactive and actively resist linking to a customized chart. I'll link to the benchmark. You'll need to click "Compare" and enter the two leveraged ETFs, be sure to check the "Display as a Percent Change" option, and then mess with the duration (from 1D through 5Y is illustrative). You can see that daily or short-term returns are inverted relative to each other, but long-term returns (6 months or more) are net negative across every pair of ETFs.

Crude oil: UWTI is 3x, DWTI is 3x inverse. USO is a proxy for the benchmark. http://www.barchart.com/interactive_charts/etf/USO

Small caps (e.g. Russel 2000): TZA is 3x, TNA is 3x inverse. IWM is a proxy for the benchmark. http://www.barchart.com/interactive_charts/etf/IWM

Financials: FAS is 3x, FAZ is 3x inverse. XLF is a proxy for the benchmark. http://www.barchart.com/interactive_charts/etf/XLF

Bottom line: for buy-and-hold investors, leveraged ETFs are always a trap.

FXP 2x inverse leveraged ETF of 50 of the largest and most liquid Chinese stocks listed on the Hong Kong Stock Exchange. Index goes down 7%, the ETF goes up 14% (roughly). If you love more risk, YANG for 3x inverse leveraged ETF.

"sharetea" has the right idea.

I've studied China for 29 years, speak/read Chinese and Japanese well, and have lived there long stretches.

All his statistics are correct. Most importantly is the capital flight - of both Chinese individuals and overseas investors.

Not to mention the expats (though I guess we are small part of this). I have to do a bank run today because we aren't allowed to do forex on weekends anymore (the rules get weirder and weirder!).

And all done. Took about 3 hours, but I had to run back home to get my old passport (my current one wasn't good enough). The bank was filled with people doing the same thing.

>Manufacturing moving out of China http://www.forbes.com/sites/kenrapoza/2015/10/11/is-the-made....

Clothing is the lowest point on the value chain. They never meant to become a clothing manufacturer perpetually, they were using it as a way to leapfrog up the value chain.

They're pretty happy to let Bangladesh take over the manufacturing of clothes while they do electronics (and ultimately aerospace and CPUs).

Manufacturers (Samsung, Foxconn, Panasonic) step up search for low cost alternative to China

http://www.scmp.com/business/companies/article/1863709/manuf...

Japanese companies (Toshiba, Citizens) head for exits as China loses steam

http://asia.nikkei.com/magazine/20150611-Something-in-the-ai...

To respond to your links, one by one...

* 1-2% GDP Growth that you cited is the opinion of one woman who makes a living selling opinions on the Chinese economy, it is anecdotal. * The article you posted states that central government GDP/Debt ratio is 64%, whereas local debt is 280% - so relative to the United States, with a total debt ratio of 332% China is still "flush with cash," in a sense and could stimulate out the 280% ratio, as the very article you cited notes. * Regards to Banks/Commodity firms - they are state owned, they could be privatized and this would improve efficiency. * You need to read the articles you post - there are $1Trillion in Foreign Reserves left to help the Yuan glide down slowly against a foreign basket of currencies, out of a total $4Trillion in foreign reserves. The US has $0.4T by the way, far less (this includes gold). * Epoch times is not a reliable source. They are just 100% anti-China, that is their reason for existing. * Manufacturing moves in and out of countries all the time, the net value of production in China is going up. * China does not require global consumer brands, it has 1.5 Billion people. China is flush with cash and can spend its way out of all of those issues. * No, we don't get the idea. You posted a bunch of links with very brief headlines on each. You didn't read many of the links you posted. Your post is a non-coherent shotgun approach.

The major issue facing China is the fact that it fundamentally a one-party controlled communist command-economy, and it has pegged its way into that political path, without a clear way to get its way out. They attempted to go the democracy route for a bit in the 80s, but things out out of hand and Tiananmen Square Massacre occurred, effectively erasing the Chinese political consciousness. Now they are kind of floating in this world where no one really cares about politics, they just care about making money and hope the government is nice to them. This is the defining challenge of China in the 21st Century.

The economy will go up and down but overall continue to grow over the next 20-30 years because they can buy their way out of whatever depression they need to. Things will probably get less polluted over time. If you look at the Shanghai composite, this has always been unstable and volatile and has had much worse crashes in recent memory. So every time the China stock market crashes, people come online and think they can become instant Sinologists and Peking Toms by posting a flurry of links. It doesn't mean anything --- it's a sputtering of irreverent neckbeardiness which does not further hacker news' understanding of the situation and actually makes people dumber for having read it, a la Billy Madison.

The question, as relates to that, has always been, can you stay solvent longer than the market can stay irrational? Cause what you're really saying is that the market is not reflecting the pricing data it implicitly has available, and so is not currently rationally priced. Another problem with timing the market based on the implications of macro monetary policy is that (as you do a good job of pointing out) it is just one element of many that create the environment for the companies, and it is the companies which create the fundamental value for the market. The depression you're talking about is (as all depressions are) one caused by fundamentals. Governments have quite a few tricks in their bag to get around the deflationary issue you bring up. As for "China's lack of global consumer brands, ...", once their consumer class is up and running (which is exactly what all of China's government's spending is aiming to do) they will have more consumers than the US has citizens, and then (a lota) some. Basically, it's just not that simple.

> For a fully functioning stock market you need...stoggy [sic] old buy/hold/long only investors

I'd qualify this with value orientation. To have a successful stock market you need the factors you mentioned plus long-term holding value investors.

To illustrate the difference, consider what would happen if the Warren Buffetts and David Teppers of the American capital markets put all their money into ETFs. You'd have no price discovery. Someone needs to be wiling to do their own research, reach conclusions with conviction, and trust in those conclusions through short- and medium-term wobbles.

Long-term value investors require capital. They also need transparent, liquid markets. China has capital and liquidity. It lacks (along with India, Russia, and a number of other "emerging" equity markets) reliable data and/or trustworthy institutions. This deters long-term value investors [1].

[1] https://www.scribd.com/embeds/294654490/content?start_page=1...

Yes. Or, very simply put, you need more long-term optimists than long-term pessimists. China is wealthy in many ways, but a wealth of optimism is not prevailing.

Optimism in society requires faith in leadership. Trust. Transparency. Perhaps even a higher purpose. Maybe even a sense of global humanity. I do wonder how things may have been different for China had its tooling been fitted for slow, highly transparent and deliberate growth.

> ... put all their money into ETFs: you'd have no price discovery ...

I disagree. ETFs just track an index. If you buy the ETF, someone else is buying the index (individual components of that ETF) for you...

You're technically correct. I'm using the term "price discovery" crudely in light of the audience. "Valuation" would be a more accurate, if more ambiguous, term.

If everyone buys indexed ETFs, the market stops discerning between the index's components. If everyone buys "China," the difference between "shitty thing over there" and "half-decent asset if not levered through the roof" vanishes. When the market starts falling "finger in the pie" syndrome sets in. Nobody has any idea what one thing is worth over another. Even if they do, they probably can't trust their data, and even if they can, they know nobody else can. So everyone dumps "China," punishing all assets alike.

> So everyone dumps "China," punishing all assets alike.

This is already happening due to the circuit breaker actions. What happens is that the trust in the market mechanism gets eroded to the point where even those companies that were not the ones losing big time will get drawn into the next wave of sell-offs. It's basically a stay of execution at that point (if we haven't already passed it).

> To illustrate the difference, consider what would happen if the Warren Buffetts and David Teppers of the American capital markets put all their money into ETFs. You'd have no price discovery. Someone needs to be wiling to do their own research, reach conclusions with conviction, and trust in those conclusions through short- and medium-term wobbles.

There are a lot of different ETFs, some much more broad than others. You don't need to buy the whole market. If you think energy is cheap you can buy an ETF of energy companies (say XLE) which is a useful way to diversify if you're not able to buy reasonable quantities of multiple names.

I'm skeptical that the presence of buy and hold investors is the missing ingredient.

Even if 15% of investors are speculators, the price can still swing drastically, since price is a function of supply and demand, and the charts we're seeing are not volume-weighted.

Market price stability is a function of the uniformity of supply and demand over time. Buy and hold investors already own the stock so their preferences are not reflected in short term supply/demand uniformity (price stability).

What we're seeing in China is a lack of uniformity of views on the future price, and thus rapid fluctuations in supply/demand uniformity over time. Government instability plays into that tremendously.

Price is a function of faith in the future.

What we're seeing is a lack of faith that many are finding disturbing.

> Price is a function of faith in the future.

That is a fairly unfalsifiable statement, and it is trivially true for nearly anything, b/c we all make all decisions today based on the faith/expectation that we will be alive tomorrow.

The notion that tomorrow will be substantially different from today makes nearly all planning useless, so it's trivial that all planning hinges on some notion of faith in the future.

But price itself is only a function of supply and demand. If I am selling bread and it's nearly time for me to go home and the bread will be stale tomorrow, I might offer the remaining loaves to the last few customers at a discount if I expect it not to sell otherwise, etc. Supply vs demand. Charted on a graph the price would take a nose dive at the end of the day.

If a short term investor feels that his position will not improve, it makes sense to liquidate. The more symmetrical market participants' views are, the more the price will change as a result of trading (why would someone sell when they expected the price to go up?. This illustrates the adage that one person's junk is another person's treasure) To be logical we must consider would-be buyers and would-be sellers of the shares.

Only in the rather peculiar case of significantly asymmetrical views of the future price will the price remain stable with lots of shares changing hands.

Why do think Indian stock market is not transparent?

"india" is being lumped together just for namesake. I don't think indian market is any less transparent than US/Japan or others.

Nevsky Capital, a successful hedge fund, just shut down and released an interesting letter to its investors that's worth reading in full. I'm not sure about the transparency of India's stock market, but it did not have nice things to say about the quality of their economic data:

"Data releases have become much less transparent and truthful at both a macro and a micro level. At a macro level the key issue is the ever increasing importance of China and India. China is the world’s second largest economy, but already much larger than the US in a broad swathe of sectors. India will be the world’s third largest economy within a decade. Unfortunately their rise is increasing the global cost of capital because an ever growing share of the most important data they produce is simply not credible. Currently stated Chinese real GDP growth is 7.1% and India’s is 7.4%. Both are substantially over stated. This obfuscation and distortion of data, whether deliberate or inadvertent, makes it increasingly difficult to forecast macro and hence micro as well, for an ever growing share of our investment universe."

http://www.businessinsider.com/nevsky-capital-closing-letter...

It's really frustrating to see China and India constantly discussed as if they were a single unit, particularly when it comes to economics.

Aside from the fact that they are (a) both very large, and (b) both rapidly developing countries/economies, China and India share very little in common.

There are challenges to investing in either China or India, but the reasons behind those challenges are about as different as you can get. The underlying issues in the two countries are dramatically different.

Perhaps you could tell us what those differences are?

As I see it, India is a functioning democracy with a strong commitment to capitalistic industry. Regulation might be too much/too less in some areas but that will eventually improve. OTOH, China is very close to dictatorial, with the government controlling everything from the exchange rate to every company's policies. For example, we have proper public debates in India about stuff like net neutrality, freedom of the press, and we routinely criticize the government and politicians. That is simply not possible in China.

I really do not understand how anybody with even a little understanding of the two countries can lump India and China together in the same political/financial group.

Because, "capitalist" and "communist" are not two fundamentally opposed groups: go far enough in either direction, and you end up in the same place results-wise.

> I really do not understand how anybody with even a little understanding of the two countries can lump India and China together in the same political/financial group.

Are you asking how the term 'BRIC' came about?? If so, the paper where the term was first used is available online and it is remarkably readable. The pdf is located:

http://www.goldmansachs.com/our-thinking/archive/archive-pdf...

There were at least two follow up reports that I'm sure are also available online.

The BRIC (Brazil, Russia, India, China) countries are all grouped together because they all have very large populations (Russia is the smallest at 140 million) and rapidly modernizing economies. In other words, they're actually big enough to stand on their own on the global stage should their economies become fully developed.

From the standpoint of an investment banker (which is where the term BRIC comes from) any differences between them are largely irrelevant - they all have a large population, a government that is stable enough to protect their business investments, and an improving distribution of wealth to ensure widening participation in the economy to sustain growth for decades (this is important when macro investing; a rising tide raises all ships, and macro investors are basically investing in all ships). But that's about where the similarities between these 4 countries end, so using the term "BRIC" to speak about cultural similarities is meaningless.

So let's just talk about countries with more than a billion people with growing economies? They are mentioned together because of their developing status and increasing effects on the world economy, but otherwise have little in common.

I'm not sure how you think they are lumped together. That quote outlines how each specifically meets the criteria of being "less transparent and truthful" in the eyes of the author.

I don't know why you are getting downvoted; you're absolutely correct. Note that while the below sounds racist; I'm referring explicitly to the governments themselves.

> There are challenges to investing in either China or India, but the reasons behind those challenges are about as different as you can get. The underlying issues in the two countries are dramatically different.

I agree; and you probably know this all, so it's for others' benefit. China is a centrally-planned economy that has transitioned to a capitalist-style oligarchy. Culturally, they value society as a whole as being more important than the individual or individual groups. The Chinese government is still the ultimate authority, though many factions exist within the Communist party. Everything coming from the central Communist party is reviewed and OKed by a dozen officials to ensure a consistent story - so any bad numbers are a result of deliberate overstatement at some level. It also means that stakeholders at every level have the opportunity and incentive to falsify numbers (because missing your numbers means losing your job and ending up in poverty). It's not a giant conspiracy; but there is little downside to falsifying accounting numbers (which will get you a prison sentence in the US).

India is on the opposite end of the spectrum - it's basically a free-for-all with a bunch of very different groups of people pushed together to try to make it work. There are thousands of ethnic groups, many of whom hate each other. So in order to keep the peace, they have to allow each ethnic group a wide berth. This means that when you say "the Indian government" you're talking about an entity that is a multi-headed hydra (or even multiple hydras). There are many competing desires and biases present in the Indian government, and it's politically difficult to deal with those problems when your population is as fragmented as India's is (and why the election of a more modern leader with a global focus like Modi was a huge step forward).

That's a pretty hilarious statement considering the lack of transparency is what led to our own market crash.

That was lack of transparency inside privately generated mortgage backed securities. The US crash wasn't caused by blatant lies about economic indicator (GDP numbers, etc). The transparency of the housing sales is actually what allowed people to see the contractions and prevent the issue from getting even worse.

With the tech bubble/bust you could look at underlying companies for the canary in the coal mine. With the housing bubble/bust as you mention you could look at each mortgage and the ability of the borrower to pay. When you have a bubble arguably in government debt, what is the mechanism of transparency to look for?

With the housing bubble there wasn't a good way to look at each mortgage or the borrowers ability to pay. In a lot of cases the mortgage data was falsified or didn't even exist. In the aftermath of the bust several banks could not produce any documentation on homes they wanted to foreclose on.

Transparency of housing sales isn't what allowed people to see the contractions and it certainly didn't keep the problem from getting worse. Massive numbers of defaults were the indicator. What kept the problem from getting worse was the government taking partial ownership of the major banks/AIG, increasing the FDIC limit and TARP.

Stock market movements are heavily influenced by macroeconomic trends like inflation, GDP, unemployment etc., and the government is the organization tasked with collecting and disseminating that data. When you don't trust the numbers coming out of the central bank, you can't have much trust that the stock market is reflecting the true value of the securities.

With regards to the Indian governments' fudging of macroeconomic stats, this article may be helpful: http://www.bloomberg.com/news/articles/2015-12-14/india-now-...

This article is useless.

Can you specify why it was "useless"?

When people refer to the 'stock market' not being transparent... they are referring to the Regulators. Indian regulators are as transparent as US,China,EU. They have been known for bringing down big shots e.g. Sahara Group but on the other hand have failed to investigate some of the other big co's.

What indian economy lacks - 1. new credible entrepreneurs e.g. existing group co's have gotten into more new businesses and expanded into traditional sectors as compared to a handful of new names. 2. new business models e.g. most business are copying what has existed in US such as ecommerce, taxi aggregators, etc. 3. enhancing regulation in existing markets e.g. real estate.

Its all about the data.

We dont have anything similar to EDGAR.

> The scariest thing about this for the global equity markets is that in 10-20 years the top 3 markets could be China, India and the US.
> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. The other two countries are about as opaque as you can be. Speaking as a person who actively invests money, that's a very troubling thought.

> As one economic nobel prize winner put it... "China and India haven't put out a credible macroeconomic number in the past 10 years".

This was one of the reasons cited for renowned hedge fund Nevsky Capital closing its doors. They are up 1212% since 2000. [1]

[1] http://www.zerohedge.com/news/2016-01-05/why-15-billion-nevs...

I wonder how this relates to the 'ghost' towns being built over there? Could this be a consequence of the slowing rate of construction of these huge cities/housing projects (no one lives in practically)? That artificial growth is/was not sustainable and the bubble is bound to collapse, or is this simply oversimplified view of the problem?

I've always wondered about this as well. Heavy investments in new cities, when there was no demand for them, just for the sake of "increased growth" was always a red flag to me. Interested in any correlation.

I don't have any direct sources for this, but the word that I heard from a friend who spent some time in China recently was the following:

  - Chinese investors have limited places to park their cash.  Stock market and real estate are two major options, and real estate is seen as a superior investment (stock market has... problems, you could say)
  - Chinese law prevents purchasing property without developing it.
  - Real estate investments therefore require barebones property development--regardless of tenancy--in order to remain legitimate.

Therefore, "ghost towns" are a natural outcome of Chinese investment in Chinese growth. They can remain vacant for a long time and still satisfy the investment goals of the developer.

(edit: list formatting)

>> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government.

This.

This will be China's undoing. The hardest thing to try and control are open market forces - which China is clearly controlling and attempting to manipulate, with disastrous results.

CCP cares way more about maintaining control than in ensuring stability. I'm sure they have plans in place to shut the whole market down if they decide it needs to be done.

Stability is arguably the preferable method to retain control.

ie, Mandate of Heaven. https://en.wikipedia.org/wiki/Mandate_of_Heaven

> CCP cares way more about maintaining control than in ensuring stability.

That may be true. But I think they also see lack of stability as threatening their ability to remain in control. So in practice, they care a great deal about stability.

They have other ways of maintaining stability. Ways they have been relying on for decades before there ever were viable financial markets. They can simply fall back on those.

I wonder if that's true. The people are used to high growth and a steadily increasing standard of living. If the CCP decides to go back to Mao's playbook they'll likely have a revolution on their hands.

The CCP is absolutely massive in terms of what percentage of its people are party office-holders. They have unprecedented levels of control over all aspects of Chinese life.

Revolutions grow out of revolts. Revolts grow out of riots. CCP is remarkably adept at managing riots. For riots to grow, you need revolutionaries to amass power. CCP is remarkably adept at policing this kind of action too.

The CCP isn't going away anytime soon. Xi Jinping has way more to fear from intra-party power struggles than from grassroots activism.

> in 10-20 years the top 3 markets could be China, India and the US.

What about Brazil? (not that they are transparent/credible, but that they ought to have huge economic growth over the next ~20yr)

Brazil has a fundamental mistrust of the free-market that holds it back. It's tough doing business in Brazil.

I've had a little experience with this and I agree. If they can improve here (and what's to say they won't in the next decade), what's left to hold them back?

What specifically about the free market is hold Brazil back? What changes would increase economic output? I understand that import taxes on things like consumer electronics are punitively high, but that's a cross-section of the consumption aspect of GDP. GDP can still be increased through capital investment, fiscal policy and net export growth.

> It's tough doing business in Brazil. Yes, dysfunctional bureaucracy both in the public and in the private sector (government, banks etc.) makes it really hard to create and manage any business. I tried really hard for a while, but it didn't work out.

It's probably going to be a while before Brazil resumes its trajectory: http://www.economist.com/news/briefing/21684778-former-star-...

Isn't 10-20 years a while? PS thanks for the linked article.

If it resumes in 10-20 years that means it still has a long way to go (not to mention catching up for lost time!).

Brazilian economy crashed hard last year and it is only getting worse.

Sadly Brazil is little better than a middle eastern oil state. They rode a massive bull market driven by China's insatiable appetite for commodities. Rather than use that whirlwind to diversify and prepare for the day that slowed down they appear to have done little. It's very sad.

You could say that Australia's in the same position. We dig up stuff and export it to China. We had a chance to extract some tax from the mining companies but blew it.

I don't think things are going to be very nice here in 10 years.

Canada too. But Brazil's landing is/will be dramatically worse than Aus/Canada.

Brazil is collapsing and there's no light at the end of the tunnel yet.

They have plenty of people who want to make long term investments, but no long term trust. Due to the lack of transparancy and impartial rule of law.

So, you know that the NYSE was started by a bunch of guys on the edge of town under a tree? The key was they were located at the heart of the business district, where the transactions were occurring. This has been true and crucial since the early days of "finance", since back in medieval and Renaissance times when merchant houses (as in 'establishments', not actual buildings) exchanged debt and eventually stock.

As to the US stock market being "fairly transparent and not run by the whims of the government", check your history man. The US stock market has seen some crazy wild, stock manipulation, insider trading, government manipulating, bucket shop, boiler room, "oops, we have too much paper to process so shut the whole thing down" days.

And, I should add, those days aren't over. The mess is still all there, it's just much more sophisticated and comes with a better staffed and better funded marketing department.

The most important thing is you need companies that have the ability to return capital to investors. If you do not, what you have is like free-to-play mobile game. Real money goes in, and is then redistributed to the insiders who take it and walk away.

This comes in two pieces, first transparency and accuracy of the company: Who is enforcing accounting standards? Who is doing the auditing to ensure the said assets are really there?

The second, is the economy based on real demand or something temporary: Are profits dependent on the activity of government officials & central bank finance?

It would be very unfair to single China out in this regards, just look at what happened to Brazil.

What is "operate properly" for a stock market? For us Westerners, it means be fair and equal to everyone. But maybe for a less efficient country, it means moving from peer-to-peer trades to centralized, which at least defines a unique trading value and is already better than multiple, independent, bilateral sales contracts.

> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government.

I wish I could believe this, but after years of federal debt fueled Quantitative Easing and implicit guarantees of "too big to fail", I've stopped believing this is true.

Says former Fed governor Fisher: "We frontloaded a tremendous market rally to create a wealth effect ... The Federal Reserve is a giant weapon that has no ammunition left."

http://globaleconomicanalysis.blogspot.com/2016/01/former-da...

This is true to SOME extent, but the amount of interference in china is on a whole other order of magnitude. For instance, read this July piece from the Guardian: http://www.theguardian.com/world/2015/jul/16/why-chinas-stoc...

I think, 'transparency' in this sense might be more akin to 'predictability'. If you can count on the big players to act a certain way, even if that's the most evil thing possible, you can make a decision with confidence. if they're out there doing random stuff all the time, it's really tough to say, 'this is the right choice'.

I just finished Too Big to Fail by Sorkin. From that point of view, everyone was facing something that had never happened before, so it's hard to be predictable in that case. One day, they push J.P. Morgan to buy Bear Sterns. One day they let Lehman Brothers die. One day they nationalize the banks. It was just all over the map. On the other hand, they were facing something new, never really thought about before. It's hard to have policy for rare events, so they just kind of tried stuff and iterated on what worked.

It's kind of a testament to the quality of the US market that you can say for sure, 'i don't want any of that', because of a specific reason. That's very different, and far more valuable than 'i don't want any of that because it's incomprehensible'.

Right...but a real problem is, or course, moral hazard, ie "if they did it before (bailed us out), they will almost surely do it again, so what incentives do we have to alter our risky behaviors that are currently making all of us rich?"

All I was trying to point out is that the idea that the US market is devoid of any government manipulation and shenanigans is fiction at best.

The assistance had a pretty hefty price. First, the weakest died. it's not like the fed jumps in at the first sign of trouble. Second, companies had to take losses first. They take the first billion (or more) before any fed help kicked in. Third, they got nationalized. Nobody wants that, and everybody bought the government back out as quick as they could, or died.

I don't want to dismiss your argument, moral hazard obviously had an effect - http://www.federalreserve.gov/pubs/ifdp/2012/1043/ifdp1043.p...

But, again, the beauty of our system is we have an idea about how the major players will act, it's not totally opaque and unpredictable like China. If there's another little bubble, it's pretty clear the fed will just let that industry die. If it's huge, at least some players will die. The rest, can either suffer on their own, or suffer as a nationalized entity.

I am very ignorant about all this stuff. But am I correct that until recently, the Chinese government was actively devaluating the yaun to support their export industries? But now they've had to do an about-face and start trying to push it up?

So why are people then trading stocks in China or India or wherever if they don't trust the system? They wouldn't be able to become the largest stock markets if nobody would trade there and there would be nothing to be scared by.

Where else is your average Chinese person going to trade stocks, especially given the government's capital controls?

Don't trade stocks. If this is no option for whatever reasons it would still be a problem contained in China if all the outside investors stayed away.

I think you're underestimating how pervasive the stock market is in doing stuff. Say, foxconn wants to build a new factory. they put up stock as collateral for a loan to pay for it. Stock crashes. They have to sell existing assets to cover the loan.

Even if they retain control by selling to a trusted partner, the asset shift is painful. If you can imagine foxconn getting into that trouble, it's very easy to imagine them not being able to manufacture IPhones or Galaxys for a few months while they negotiate contracts with the new asset owners. Any idea what that would do to Apple stock? And, you know, your 401k?

This is an extreme example, but captures the spirit. when suppliers go out of business, or even run into trouble, all the companies that depend on them slow down, have to renegotiate new contracts, possibly miss deadlines. It can be ugly.

Because you can still make money in the short term. The lack of transparency means that every dollar you invest there has extra risk attached to it. This discourages long term and large investments while promoting short term thinking and risky behavior.

Then they shouldn't complain - they get what they signed up for.

When a lot of the economy depends on volatile markets, there are negative externalities. In other words, it doesn't just affect the people who are using the market to gamble.

They don't know enough to complain. That's a major part of the problem. Signing up is compelled by misrepresentation of the entire system, the whole way through.

The people engaging in risky behavior aren't complaining. They're selling (or trying to).

China has significant capital controls, they don't have many other options.

Some may have been leaned on by the government to participate. Some did trust the system to start, and are now struggling to get out. Some thought they could make a quick buck.

Why do people gamble hoping they "win"? It's the same principle here.

Holding cash is a losing strategy long term, plenty of money has already gone into real-estate. They can't expatriate their money, where else is it gonna go?

The Chinese are expatriating plenty of money; just ask anyone trying to buy a single family home on the US and Canada west coast.

See http://www.nytimes.com/2015/11/29/business/international/chi... and its discussion https://news.ycombinator.com/item?id=10645768

You are talking about two different economic classes. It takes a few hundred thousand dollars to move immigrate to Canada and it takes more to be a housing speculator.

  > So why are people then trading stocks in China or India or
  > wherever if they don't trust the system?

If you're speculating, i.e. purchasing for the sole purpose of selling it to someone else, who is also speculating, it doesn't matter whether the system is trustworthy, it only matters whether there is a "greater fool" standing ready to trade with you.

If the perception is there that people are trading in these markets, people will trade in these markets. But without fundamentals, the whole thing can quickly suffer from a collapse in confidence, followed by a "run."

It's no different than buying Bitcoins. Why speculate in bitcoins? Because other people are speculating in bitcoins.

I have been playing a fun game where I see if a financial article on YC has bitcoin mentioned in the comments. It is in basically every comment section of anything related to finances. Personally I speculate in Bitcoins as a hedge against variations in cash and stocks. I like to think of it as e-gold that has some advantages and disadvantages versus a solid asset like gold. Due to the increasingly global and digital nature of our existence I think BTC has a very high potential upside.

Well the stocks aren't worth 0, and they aren't worth infinity. So they will always have some price worth trading.

> So why are people then trading stocks in China

Non-rich Chinese people are doing that because the government has been pushing it pretty hard (think the way state lotteries are pushed in the US, or fantasy sports, with pretty much the same returns, really).

Oddly enough, said non-rich Chinese people are also the ones China is trying to protect with its market stabilization efforts, or so it claims. I'm really not quite sure what they _think_ they're doing there.

Apart from that, it's pretty much all people looking to make a quick speculative yuan.

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