Why are China's stock markets so hot? There are a number of probable causes for it, but perhaps the most basic, simple reason is that the Chinese economy is awash in money. The high level of cash liquidity in China means that people have money to invest. And as they do it, they drive the index in Shanghai ever higher...

Reuters thinks that the Chinese government may have finally found a way to cool down the economy (and with it the stock market) just a little.




How do you dry up liquidity? China has decided to sponge up some of the extra cash in the country by offering three huge initial public offerings. In the past few days those IPO's have become the topic of conversation...

• Ping An Insurance (Group) Co., the second largest insurer in China, has said that it plans to sell as many as 1.2 billion new A-shares and to offer up about $5.7 billion in bonds, a combined value that could approach US $20 billion and be the biggest such offering ever in China.
• China Coal Energy Co., China's second-biggest producer of coal, announced plans for an IPO on the Shanghai Stock Exchange that could be worth worth as much as $4.5 billion. That would be the 10th larger offering in China's history.
• China railway Construction Corp. put a proposal last week before regulators for a Shanghai IPO worth about $3 billion.

Together the three deals could suck up as much as US$28 billion worth of yuan out of the Chinese economy and solve some of the country's problems with excess liquidity - for a while, at least.

The Shanghai stock market almost doubled in 2007. It rose 97%. China's hot economy has begun to see inflation, especially in grocery stores. China has been looking for a way to cool the economy down for some time, but the rise in inflation is making the issue more urgent.