2016-05-10 — bloomberg.com
What started as a logical bet -- that China's economic stimulus and industrial reforms would lead to shortages of construction materials -- quickly morphed into a full-blown commodities frenzy with little bearing on reality. As the nation's army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu.
Now, as Chinese authorities introduce trading curbs to prevent surging commodities from fueling inflation and undermining plans to shut down inefficient producers, speculators are retreating as fast as they poured in. It's the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China's policy makers flood the financial system with cash to stave off an economic hard landing.
"You have far too much credit, money sloshing about, money looking for higher returns," said Fraser Howie, the co-author of "Red Capitalism: The Fragile Financial Foundation of China's Extraordinary Rise." "Even in commodities where you could have argued there is some reason for prices to rise, that gets quickly swamped by a nascent bull market and becomes an uncontrollable bubble."
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