Some analysts believe that China’s stock market is becoming a place where bad investments go to die. This has certainly been reflected in its activity lately, as China’s economy is hurting badly. And although its stock market is showing signs of having hit a bottom, there is still plenty of uncertainty and volatility left. This is more than enough to keep cautious investors out of the marketplace.
Basically, what this means is that because China is in the midst of a transition, some restructuring is occurring. China was very heavily dependent upon manufacturing and the investment dollars that flooded in as a result of this. As they switch gears toward a services based economy, a lot of those investments have ceased, and many companies are in big trouble as a result of this. A lot of those loans and investments are now bad debt and have a very low chance of being returned to the original investors. What is happening is that China is looking at ways to correct this problem, and the end result is that many of these bad debts are being transferred into the stock market. This is taking shape mostly as corporate restructuring, which ultimately is allowing companies to mask over their debt and move forward.