Pre-Conditions for Chinese stock bubble explosion

There are 4 main pre-conditions for the explosion of the Chinese stock market bubble:

1. US recession or slowdown

I think US slowdown is already self-evident. No territory on earth has thrived well by creating real estate bubble, inflating property prices or speculations. Neither Japan in the 90s nor the US now can escape such fate. Whether the US is in recession seems to be academic; it all depends on how you define the "R" term.

History has told us that when you use assets for basic livelihood like houses as the means of inflating economic growth, you must end up in disaster. But human beings refuse to learn from history. Asia is repeating the same historical mistake - you can see asset inflation in Mainland China, Hong Kong, Macao, Singapore, NZ...You may think that you will be clever enough to jump the boat before it tanks but remember what has happened to the Titanic!

2.Slowdown in China's exports

Some try to persuade innocent speculators to believe that China will not be affected when the US is in recession. Such attempt represents an insult to your intelligence and common sense. Many Asian countries including China rely to a very large extent on exports to the US. Whether you accept "globalization," you should be prepared to accept if the US reduces their imports from China (for whatever reason), the negative impact on the Chinese economy could be devastating. China is the factory workshop of the world and in particular a factory for the US or rather the multi-national companies. A slowdown or recession in the US will have worldwide effects and even these MNCs cannot avoid it. Look the falling share prices of stocks like Li & Fung, Espirit, Lenovo, etc., in Hong Kong and you have to admit that the wishful thinking that China won't share the pain is self-deceptive.

3. Chinese citizens being allowed to freely invest in foreign and Hong Kong stock markets

This is perhaps the most important pre-condition but it should very unlikely occur. If it does, both the stock market and the real estate property may collapse and the first thing you may see is an uncontrollable outflow of Chinese capital to foreign and Hong Kong markets. Our Chinese citizens may not be buying stocks but they will undoubtedly purchase lots of foreign currencies particularly high-yield currencies, Euro, GBP, A$, NZ$...If you are the rich or the super-rich in China, you must have learnt what happened to the rich in recent Chinese history and whether you like it or not, you will be advised to adopt good measures for asset protection, etc. This is what the international banks and financial institutions in Mainland China will tell the rich in China to do once they are allowed to move their capital outside China! Yes, the rich may take away all or a substantial portion of their capital to foreign markets and Hong Kong particularly if and when the prices of stocks and real estate in foreign markets like the US, Europe,...look cheap after the devaluation of USD, appreciation of Chinese Yuan, the fall of their stock markets, etc. The end result would inevitably cause a rapid fall in prices of stocks and real estate inside China. That is why some foreign economists would argue that to curb the overheating economy of China, China must allow free investments in overseas!

4. A rapid appreciation or depreciation of the Chinese Yuan

The speculation on appreciation of the Chinese Yuan is very unreasonable. Our Central Authority has repeatedly emphasized that the Yuan may only appreciate very gradually but no one listens! Now if we see a sudden appreciation of 10-20% or as our US friends would like 40%, our Chinese economy will end up like Japan in the 1990s! Conversely, if we see a sudden depreciation of our Chinese Yuan by 40%, our Chinese economy will also be in serious trouble.