Although the Chinese economy reportedly grew 9.5% in 2004, that growth failed to energize Chinese markets that have been largely lethargic since the market bubble burst in 2001. The Shanghai and Shenzhen indexes were down 15% in 2004, and fell to their lowest points in six years and eight years, respectively, on Jan. 31 this year. This lackluster performance has likely discouraged Chinese investors, most of whom view the domestic stock market as a platform for firms to raise capital but not necessarily to make money. So while some macroeconomists fear the Chinese economy is overheating, the capital markets reflect a different reality. Results from the latest Gallup Poll of China reflect skepticism about the stock market.
Only 5% of Chinese say they or members of their households own stock purchased from a stock market -- more or less unchanged since 1999, when Gallup last posed the stock ownership question. Predictably, stock market investing is an urban phenomenon, with no rural Chinese reporting stock ownership. On the other hand, 13% of urban Chinese own stock and the concentration of stock ownership increases in the largest cities. About a third (30%) of Chinese living in the country's three largest cities own stock, and in Shanghai that percentage reaches 44%.
In keeping with the urban/rural income divide, stock ownership patterns are also tied directly to affluence. Stock ownership is virtually non-existent for Chinese with annual household incomes under 17,000 RMB. It is by far the most common among people with household incomes of 30,000 RMB or more -- 22% of Chinese in that category own stock.
About 15% of all Chinese who identify themselves as Internet users tell Gallup that they use the Internet to check stock prices. Given that only 12% of the population say they have ever used the Internet, this finding helps confirm the lack of public confidence in the stock market. Male Internet users in their 30 and 40s are the most likely group to check stocks online -- about 3 in 10 men in this age category do so.
With regard to the type of stocks Chinese investors own, the poll shows 86% of stockholders purchased stock from the exchanges, and 21% own stock purchased directly from their company or another company.
Bottom Line
An efficient stock market can serve as an unfailing indicator of economic confidence and health. But in China, investors are still waiting for regulators to create incentives for the stock market to work efficiently. While they wait and watch, trading volumes are plummeting and the takers for stocks remain few.
