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Thread: China's Gini coefficient is higher than all developed countries

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[quote=MARRIE,272004]`Tenuous Connection'

``The Chinese stock market has only a tenuous connection with the underlying real economy,'' said Harvard University professor Kenneth Rogoff, a former chief economist at the International Monetary Fund.

China's limited domestic ownership means that if stocks do slump the effect on spending and the economy should be minimal, said Jonathan Anderson, chief Asia economist at UBS AG in Hong Kong.

Total stock holdings in China account for just 25 percent of domestic wealth, and in Asia only Indonesia has a smaller market capitalization than China's 60 percent of GDP.

``The tradable equity market is still a very small part of wealth holdings in China,'' said Anderson, another former IMF economist. ``Even a significant domestic equity-market correction would have little or no impact on the rest of the mainland economy.''

Earnings Fuel Expansion

Economists say another reason for confidence is that companies have fueled the economy's expansion mostly with earnings rather than using the booming equity market as a primary source of cash. Chinese companies last year earned combined profit of 1.88 trillion yuan, according to the statistics bureau, compared with total shares sales of 197 billion yuan.

Ownership of Chinese shares in other economies is limited. China has capped foreign investment at an aggregate $10 billion in the yuan-denominated ``A'' shares, less than the market value of about 700 U.S.-listed companies.

``The world economy is not particularly exposed to share ownership in China,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London.

That means the global economy will only suffer if China's economic expansion begins to ebb, which few see happening.

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