China Redux

Top Chinese officials are openly warning of a bubble in the stock market. At least three state-run papers ran major stories about a recent warning from Zhou Xiaochuan, governor of the People’s Bank of China, who said that he was concerned about the bubble, reports the Financial Times.

But investors were unimpressed and the market didn’t skip a beat, rising three percent in trading Tuesday.

In a post three weeks back, I wrote that “there’s a lot of complacency” in the market and that Chinese officials didn’t seem to be doing much to address the situation. The reality is proving a bit more complicated, of course.

Chinese officials are trying to talk down speculators, but to no avail. In the past, strong statements about the market have strongly influenced share prices (as with the Federal Reserve in the United States). But times have changed, the FT notes, and “the admonitions of senior officials seem increasingly impotent.”

So why have investors stopped listening to official warnings? One explanation is that they’ve become desensitized to all the talk. Officials have so far resisted any decisive moves, such as ticking up China’s low interest rates.  But authorities appear unwilling to do anything that could actually slow the country’s torrid growth.

So China’s investors are calling their bluff.

Of course there are other, less rational reasons to disregard the advice of China’s top economic officials and stop worrying about the bubble: some people just like to gamble.