An explanation for persistent weakness in China’s stock market

China Stock Market (SSE Composite) – source: Tradingeconomics.com

One of those explanations focused on the need for reform. Once the economy and the markets undergo some key reforms, the market will take off. At least that was one of the theories. So now that some major reforms have been announced (see story), why hasn't the market responded? Donald Straszheim of the ISI Group wrote a comment this weekend that provides a hint…

ISI: – This week, PM Li said that China has entered a transition period – from 'high growth' to 'medium-high growth'. He's got the direction right. Li also indicated that China is losing its competitive edge in low- and medium-level (tech) products. He's right, sharp wage gains are eroding the Middle Kingdom's competitiveness. His solution – China must rely more on technological innovations to drive future growth. Unfortunately, innovation is and will remain, we believe, China's weak point. In other words, if innovation is China's future – that future is grim. China is a technology adaptor; it is not an innovator. Li made the above remarks at an annual government-sponsored meeting which highlights major accomplishments (and makes monetary awards) in the science and technology arena.