Ignoring warnings, Chinese rush into stocks

By Eadie Chen - Analysis

BEIJING (Reuters) - Beijing pawnshop owner Xu Wei is rushed off his feet as people flock to his gleaming store, pledging cars, valuables and even houses in exchange for quick cash to bet on China's booming stock market.

"The stock market is so bullish. The money people make each day on the stock market is much, much more than the interest they pay to us," said Xu, who lends at up to 10 times the official bank rate.

That's what has policymakers nervous. Days after calling the market a bubble, Central Bank Governor Zhou Xiaochuan raised deposit rates on Friday to try to staunch a flood of money out of bank accounts and into equities.

But the higher rates are no deterrent given that China's main stock index has more than tripled in 18 months and is up 55 percent since the start of 2007.

If you don't have cash in the bank to start with, you can probably borrow it. Chinese banks are prohibited from lending money to buy equities, but there are big loopholes.

Some big banks have signed pacts with state-owned companies enabling staff with secure jobs to take out unsecured loans of as much as 200,000 yuan ($26,300) for up to a year, bankers said.

Hua Chao works for one such firm. He borrowed 150,000 yuan from a bank last week and quickly moved it into his brokerage account.

"I only need to pay 9,000 yuan interest for the loan I got, but I think I can make at least 70,000 yuan a year by investing that money in stocks," Hua, an office worker, said.

"So why not? I see almost no risk."

FRENZY

Investors without easy access to bank credit or with nothing valuable to pawn can always turn to friends or relatives.

Yan Dong, who works in an advertising agency, borrowed 200,000 yuan from his parents-in-law and cousins in February.

After two and a half months of successful punting, Yan had doubled his money. He paid back his relatives and is now playing the market with 200,000 yuan of his own cash.

Hua and Yan are just two out of millions of people who have been swept up in China's stock market frenzy.

At last week's African Development Bank meeting in Shanghai, some young Chinese reporters paid more attention to fast-moving stock quotes on their laptops than to ministerial speeches.