Three Bubbles That Could Derail China's Economy:

[OhioChick]

Aug. 13 (Bloomberg) -- Of all the breathtaking factoids about China's rise, the most fantastic may concern the stock markets. They are now bigger than China's gross domestic product.

The combined value of shares traded on the Shanghai and Shenzhen stock markets reached $2.795 trillion at the end of last week, exceeding China's $2.6 trillion worth of output for the first time. With the country growing almost 12 percent and word of mouth drawing ever more attention to a record-shattering stock rally, equities will probably continue running ahead of GDP.

What's most amazing about China's equity bubble is that everyone knows about it and few seem to care. Warnings by the likes of billionaire Li Ka-Shing, former Federal Reserve Chairman Alan Greenspan and others have fallen on deaf ears. Brokerage firms can't open trading accounts fast enough for millions of Chinese looking to get rich in a hurry.

This raises an important question: Is China's stock market getting to the point where a crash would imperil the economy?

Observers often play down that risk, arguing China's stock markets are sideshows -- mere symptoms of heady growth with little connection to the economy. With the stock market now surpassing output, it's evolving from mere irrationality into a major economic risk. While the destruction of wealth will be an issue, the real wild card is how a stock plunge hurts confidence within China and abroad.

http://www.bloomberg.com/apps/news?pid=20601039&sid=ajGfZE0i6vJ4&refer=home