Explaining the rise of China stocks in 2009

The miraculous 61 percent rise in the value of China's stock market so far this year makes a lot more sense given this crucial tidbit of information about where some of the money has been coming from. Bloomberg has the details in this report:

Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.

That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.

Wei’s assistant said the economist is traveling and can’t be reached. She declined to give her name. Calls to the press offices of the China Banking Regulatory Commission and the China Securities Regulatory Commission weren’t answered.

Since about March there have been widespread rumors that this had been going on, Chinese investors apparently none-too-shy about placing leveraged bets once again on stocks after the amazing rise and fall of equities from 2006 up until late last year.

Could this end badly? Yes.