Why China’s Market Isn’t Fixed

China’s stock market is purportedly all fixed and the last two day’s 10% bounce is just the beginning. Indeed, Goldman Sachs has already reiterated that the whole thing is on the level, and that the red chips will again be taking flight:

China’s biggest stock-market rout since 1992 has done nothing to erode the bullish outlook of Goldman Sachs Group Inc………Kinger Lau, the bank’s China strategist in Hong Kong, predicts the large-cap CSI 300 Index will rally 27 percent from Tuesday’s close over the next 12 months as government support measures boost investor confidence and monetary easing spurs economic growth. Leveraged positions aren’t big enough to trigger a market collapse, Lau says, and valuations have room to climb.

Right. The Chinese economy is in an obvious deepening swoon and the median company on the Shanghai exchange had a PE ratio of 60X before the recent break. But no matter. Not only does everything financial race the skyscrapers to the sky in the land of red capitalism, but valuation upside is apparently whatever the comrades in Beijing want it to be.

Says Goldman’s chief stock tout for China,“It’s not in a bubble yet.”.

Why? Because “China’s government has a lot of tools to support the market.”

To be sure, the confident Mr. Kinger Lau was still in diapers when Mr. Deng proclaimed that it was glorious to be rich. Or stated differently, when Deng set aside Mao’s mistaken maxim that power comes from the barrel of a gun in favor of the thoroughly modern notion that prosperity comes from the end of a red hot printing press.

Actually, that’s the heart of the matter. Mr. Lau and perhaps 50 million other Chinese punters believe that growth and wealth are gifts of the state. That is, they believe red capitalism works because the comrades in Beijing are always ready to inject “whatever it takes” by way of stimulus, guidance, controls, ever more debt and now, apparently, prison sentences, too, to keep the bubble expanding.

That millions of Chinese citizens are being annihilated financially is hardly surprising. After all, the $3.5 trillion lost in the four weeks since the June 12th peak was pure casino wealth. It did

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