Recently, as Chinese stock prices surged, financial media outlets went into a frenzy. Some are even suggesting that you should invest in the Chinese stock market immediately. I've personally witnessed instances where people changed their statements to say they always recommended investing in the Chinese stock market. It makes me wonder, when did this wave of enthusiasm for the Chinese stock market begin? If we only look at our country's media, it truly seems like chaos. However, there are crucial reasons not to be deceived by the surge in the Chinese stock market. 

The Chinese stock market has the dangerous characteristic that the Chinese government can arbitrarily drive prices up whenever they have their own agenda, and then, once they achieve their goals, they leave it alone, making it unpredictable when a crash might occur. This pattern has repeated twice so far, and if there are calls to join the Chinese stock market again at this late stage, I believe it could be a very risky suggestion.

There has been a lot happening in the Chinese stock market lately, and I will delve into it deeply. This can be seen as a real stimulus package that the Chinese government announced to boost the stock market. It starts from September 24 and ends on September 29. This is all planned by the Chinese government because the stock market only operates until September 30, and then there is a holiday from October 1 to October 7. Therefore, the Chinese government's determination to raise stock prices by September 30 is reflected in this plan. The reason behind this is that when people approach a holiday, if the stock prices are falling, they might think, I should sell my stocks before the holiday. There is a fear that if the stock prices drop significantly during the holiday, they might regret not selling earlier. There is also the opposite fear.

Generally, the Chinese stock market has been continuously declining, which has led many foreign investors to place short bets on it. However, from September 24 to September 29, there was a flood of stimulus measures announced, and the stock market would only be open until September 30. For those who bet on a decline in stock prices, this situation is pure fear. Starting from September 24, the policies began to be released, and the People's Bank of China announced a large-scale economic stimulus package. The policy interest rate was cut by 0.2 percentage points, but the truly decisive move came on September 26 when additional stimulus measures were anticipated. The market reacted with excitement, speculating that a special government bond worth around 2 trillion yuan would be issued, leading to an enormous stimulus package. This created significant anxiety in the market, and foreign investors must have been extremely nervous about their short positions.

People who placed bets were really at the end of their ropes. On September 29, a reduction in mortgage rates was actually implemented, with a decrease of 0.5 percentage points. This meant that all those who were already in debt benefited from the lowered mortgage rates. The market remained open until September 30, so one can only imagine how panicked everyone was as stock prices fell. Those betting against the market were in sheer terror. Ultimately, short covering occurred, leading to a rise in China's stock prices. How much did they rise? Looking at the Shanghai Composite Index, after the stimulus package was announced on September 24, it increased by an astonishing 27% in just six trading days. This wasn't just for individual stocks; the index itself rose by 27% in six days. With such a significant increase in stock prices, various financial media outlets in our country began airing programs asking why people weren't buying Chinese stocks.

It started pouring out. The index has dropped by 88%. So, from the point when the stimulus measures were introduced, how much has it risen? It has risen by 17%. However, what I always find unfortunate is that when the Chinese stock market is gradually rising, people don't talk about it, but instead, they always say to buy Chinese stocks at the peak. This has happened far too often. But there are points to be cautious about when it comes to investing in China; we need to be very careful. The South Korean stock market is completely different. Just how different is the Chinese stock market from those of other countries? Just looking at the graph makes it clear. The Chinese stock market moves in a really peculiar way. There are two peaks, which is quite unusual, isn't it? Stocks can rise and then fall, but they can also create a plateau or drop and so on.

In 2005, the Chinese government introduced a significant stimulus package. Throughout 2006 and 2007, they continued to implement measures, leading to a remarkable increase in the Shanghai Composite Index, which surged from 1,200 to an astonishing 6,000, a fivefold rise. It's hard to believe that a stock index could rise so dramatically in any country. The reasons behind this phenomenon are crucial to understand. In 2005, the Chinese government faced serious concerns. While it was true that China was growing rapidly, this growth was accompanied by significant corruption and many problematic assets, leading to a substantial increase in non-performing assets during the growth process. The government was engulfed in fears that they could not control this situation. It seems someone must have come up with a strategy to implement a stock market stimulus starting in 2005.

It seems that the Chinese government's plan was to sell various stakes they hold to the private sector at high prices in order to fill these bad assets. However, with the stock prices being this low, that wouldn't be possible. At that time, the Shanghai stock index was only about 1200. They likely thought that in order to resolve these bad assets, they needed to first raise the stock prices and sell shares at a high price. It seems they decided to shift the problem of bad assets onto the private sector and foreign investors. Therefore, the Chinese government and the People's Bank of China conducted thorough preparatory work. The People's Bank of China significantly lowered the policy interest rates starting in 2005. How much did they lower it? To the point where real interest rates went negative. As a result, depositors in China began to think, What’s the point of saving when the interest is almost nonexistent? This led the general public in China to venture into stocks for the first time.

Investing became a trend that everyone wanted to get involved in. After creating such conditions, the securities firms mobilized to promote companies and significantly raised their earnings guidance. They urged people to buy stocks immediately, claiming that returns would increase tenfold in the future. As a result, the Chinese public, many of whom were first-time investors, started making impulsive investments without much consideration. The media also began to endlessly promote stock investments. Various entertainment programs and documentaries were produced to constantly encourage people to invest in stocks. Consequently, stock prices soared fivefold. By October 2007, when the market peaked, stock prices had risen from 1,200 to 6, a fivefold increase. However, after reaching that peak in October 2007, stock prices plummeted again to around 1,700.

It fell, almost in a one-minute segment. But there is something truly unfortunate about this. When were the famous China-related funds in our country launched? They were all released in October 2007. South Koreans bought stocks at the peak in China, and as a result, they absorbed the entire decline in stock prices. Many people in their 40s, late 50s, and early 60s suffered losses from investments in Chinese funds at that time. Back then, when they were younger, they thought, Let's try some overseas investments, and ended up incurring significant losses. At that time, direct investment in the Shanghai and Shenzhen stock exchanges was not possible, so various funds were utilized. Coincidentally, these funds were launched at that time and were heavily advertised on Korean TV, allowing the Chinese government to offload all the poor performance and stock market bubble onto overseas countries like South Korea. It was truly...

I found it to be a very unfortunate moment. However, if the Chinese government is determined to raise stock prices, there is no need for the stock prices to necessarily drop. So why did stock prices plummet after October 2007? There is a reason for that. China views the stock market as a tool; they have no intention of letting the market operate independently. The Communist Party government does not really care about stock prices when there are issues or problems arising. Therefore, the purpose of the Chinese government's measures to boost the stock market was to sell off holdings and resolve China's financial issues, a goal that was already achieved in the early 2007s. However, as stock prices continued to soar, the Chinese people became completely overwhelmed, falling into a frenzy.

정도로 광기에 빠졌냐? 뭐 쳐서 주식 투자하는 사람도 있었고, 가장 대표적인 사람은 이 종목에 뭐든지 하여튼 팔자 들어가면 이게 중국의 부자, 부유하다, 부자이, 빠 발음이 똑같습니다. 그래서 중국 사람들이 팔자를 정말 좋아하죠. 그래서 자기가 투자할 종목을 어떻게 골랐냐? 바자가 들어가면 무조건 주식을 매수한다. 이런 식으로 완전히 광기에 빠진 겁니다. 중국 정부가 볼 때 자기들의 목적은 다 달성했는데, 중국 사람들이 완전히 재정신이 아니었기 때문에 그다음엔 어떻게 했느냐? 중국 증시를 좀 냉각시켜야겠다는 생각을 했고요. 광기를 잠재우기 위해서 안정으로 전환했습니다. 그 과정에서 주가가 폭락했는데, 이때 중국 정부가 이 폭락의 모든 손실을 중국인들이 떠안지 않도록 하기 위해서 해외 투자자들을 잘 꼬셨어요. 그래서 많은 해외 투자자들이 들어왔습니다.

Investors at this time, around October 2007, created funds and poured a large amount of money into our country, after which stock prices began to plummet. It is important to remember that China is merely a means to an end when deciding to invest in China. However, from 2005 to 2007, the Chinese government had a significant advantage; they resolved all issues related to bad debts and shifted the burden onto foreign investors. Through market stimulus measures, the Chinese government experienced tremendous success. Because of this successful experience, they initiated a second stock market stimulus in 2015. It would not be an exaggeration to say that the Chinese government managed to pull off another victory. In April 2015, another article was published in our country, stating that this time the atmosphere was different from 2007. Following that, it took only a month and a half for the Chinese stock market to crash.

If articles like this come out regarding the Chinese stock market in our country, we need to be alert. At that time, what happened was that the Chinese stock market rose from 2,000 to 5,000. The peak was in June 2015. This time, the Chinese stock market did not rise as much. Back then, it increased fivefold, but this time it only increased by 2.5 times. The reason is that the Chinese people, who had experienced the effects of the stock market stimulus once, were not easily fooled a second time. They remembered the significant losses they faced during that previous debacle. So, when such policies were implemented again just eight years later, the Chinese people were not easily deceived. Now, why did the Chinese government implement stock market stimulus measures in 2015? There were very serious issues in China at that time.

China's growth rate suddenly began to plummet. In 2010, it was 10.6%, but it continued to drop steadily, reaching 7.3% in 2014 and 6.9% in 2015. Ah, 6.9% is indeed a high growth rate. However, when a country that was originally experiencing rapid growth suddenly slows down, the shock is significant. If the growth rate continues to rise, people's living conditions improve greatly, but even if the growth rate is high, if it keeps declining to around 6%, living becomes really difficult. The growth rate has a peculiar, almost magical quality to it. As China's growth rate continued to dim, they introduced a second stock market stimulus package. However, the Chinese people had already been deceived and suffered losses eight years ago, so it was really challenging to fool them again. Therefore, the Chinese government...

Let's come up with an idea. In late 2007, we mobilized foreign investors, particularly Koreans, to support our stock price decline. This time, we thought, why not boost our stock market with foreign investors' money? In that context, the Chinese government introduced policies to attract foreign capital, such as the Shanghai-Hong Kong Stock Connect in 2014 and the Shenzhen-Hong Kong Stock Connect in 2016. They began rolling out policies that allowed direct buying and selling of stocks in Shanghai and Shenzhen through Hong Kong. It's a clever move to stimulate the domestic economy with overseas money. However, if we were hurt by this in 2007, and then again in 2014 and 2015, one might think that the party being hurt is at fault. Why do I say this? Because in 2015, the stock market crashed again. But even then...

No, if foreign capital was mobilized to inflate stock prices, it seems like they could have been maintained or increased a bit more. So why is there such a drastic drop? The reason lies in a very meticulous plan by the Chinese government, which ultimately led to the crash. The reason China supported the stock market was actually for Chinese companies to raise capital. As growth rates were falling, the real objective was to secure capital through foreign investments to boost those growth rates. When stock prices increased by 2.5 times, Chinese companies suddenly began to go public and issue new shares as if they had been waiting for this moment. If there hadn't been a close plan with the Chinese government, such a sudden occurrence wouldn't have happened all at once. These events were not the result of individual company decisions but were controlled by the Chinese government.

There is a significant possibility that it has increased. The number of listed companies has grown. In the Shanghai stock market, there were only 953 listed companies in 2013, but this increased to 1,120 by 2015. In the Shenzhen stock market, the number rose from 136 to 170 during the same period. However, what is even more alarming is the capital increase through new share issuances. The total number of shares has dramatically increased; in the Shanghai stock market, it rose from 2.5 trillion shares to 3.3 trillion shares, while in the Shenzhen stock market, it surged from 800 billion shares to a staggering 1.6 trillion shares, doubling in size. This is a deliberate strategy to mobilize foreign capital to fund their own companies. During this time, our country was also deceived. Many people invested a large amount of money and ended up suffering greatly. Korean securities firms invited investors to China.

The government has been explaining various matters and hosting events, which led to a flood of Chinese-related funds being poured out at this time. As a result, our citizens got caught up in this and suffered again. They struggled once in 2007, and then faced difficulties again in 2015. This is truly frustrating. It seems like such incidents are endlessly repeating, and I feel that we need to fundamentally prevent this from happening. The new industries in China can ultimately be seen as being supported by our money. After selling off all their stocks in June 2015, the Chinese government no longer needed to implement stimulus measures. They then allowed the Shanghai stock market to be left alone. Consequently, the Shanghai stock index fluctuated from 2,000 to 5,000 before falling back to 2,500. Because we participated in the Chinese market at such high prices during this time, it can be said that we contributed to the growth of China's new industries.

다름없습니다. 이 과정에서 5천 가능한 과정에서 중국의 빅테크와 스타트업은 막대한 자금을 확보했습니다. 우리가 중국에 투자한다는 것은 간단한 문제가 아닙니다. 중국 기업들이 우리 자본으로 우리 기업을 노릴 수 있는 그런 자금력을 얻어내는 것이기 때문에, 마치 중국 기업들에게 총을 주고 실탄을 주고 포탄을 주는 것과 똑같은 역할을 하게 됩니다. 이번 9월에도 중국 정부가 증시에 강력한 개입을 해서 주가를 끌어올렸다고 해도 과언이 아닙니다. 연휴 전에 일부러 부양책을 쏟아낸 것은 정말 작정한 것이나 다름이 없습니다. 왜냐하면 미국과 유럽 투자자들을 패닉 매수로 유도했고, 서방 돈으로 부실을 메우려는 의도가 다분하기 때문입니다. 레이 달리오가 기다렸다는 뜻은 뭐라고 했냐면, 당장 중국 주식을 사라고, 중국 주식이 이제부터 오른다고, 이제 대세 상승으로 돌아섰다고 이렇게 친중파 미국인들이 말하고 있습니다.

Investors are being encouraged to buy Chinese stocks even in the United States. However, investment genius Stanley Druckenmiller has stated that as long as Xi Jinping governs China, he will never invest in the country. While Druckenmiller hasn't elaborated extensively on his reasoning, the first surge in China's stock market was aimed at resolving the country's financial issues, and the second surge was intentionally created to help big tech companies and numerous startups raise funds. Druckenmiller, who is well aware of these dynamics, seems to have insight into the underlying intentions behind China's third attempt. I would advise against investing in China as much as possible. The main reason is that while it is possible to make money by investing in the stock market, the problem is that this money is always used by China to address either its financial issues or to mobilize capital.

Where did you spend the funds you raised? After attracting our capital, Chinese companies have been using this money to surpass our companies. The amount we invested in China is being used as ammunition for them to chase us. Nevertheless, in terms of portfolio management, some people might think, I should invest this much in the U.S. and this much in China, and create their portfolios accordingly. However, there is a very dangerous aspect of the Chinese stock market from an investment perspective. Whenever the Chinese government raises the stock market, there is always a purpose behind it. After achieving that purpose, they often leave the stock market unattended or even deliberately pull back. In that process of pulling back, foreign investors and foreign securities firms, particularly our country's securities firms, have been affected multiple times.

I was taken advantage of, and our country's securities firms are calling people in for lavish entertainment and all sorts of promotions. Then, these firms create a multitude of investment products for China. Once our money flows in, they stop the market stimulus. If this happens three times, it's truly embarrassing. We need to stop being deceived. 

Above all, I believe that the chances of this third attempt being successful are quite low. The reason is that wise individuals like Druckenmiller say that as long as there are systemic risks, they will not invest. This shows how much the perspective on China has changed. Outside of people like Ray Dalio, who are deeply pro-China, there aren't many in the U.S. advocating for a significant increase in investments in China right now. So, unlike the first attempt, which was five times the investment, or the second attempt...

I don't think Chinese stocks will rise dramatically, like 2.5 times. Even if they do rise, we need to consider whether this investment is truly wise for our children. It is necessary to think about this from a long-term perspective. Now, it seems that it's time to conclude Park Jong-hoon's Knowledge One Shot. I will see you next time.

중국 주가 폭등했다고 지금 투자 시작하면 위험한 이유 (박종훈의 지식한방)

박종훈의 지식한방은 급변하는 국제질서와 빨라진 혁신 속도를 따라잡기 위해 세계경제와 지정학적인 변화를 추적하고 이를 통해 우리의 미래를 조망하고 대처할 수 있는 길을 모색하는 채널입니다.

강연 및 협업문의
✉️ econopunch@gmail.com