DAVID MORRISON<br /><strong>SENIOR DERIVATIVES TRADER, GFT</strong><br /><br />YESTERDAY saw the result of the first Chinese initial public offering (IPO) in over a year since Chinese regulators suspended IPOs in September 2008 after worries that too many companies were anxious to tap investors for funds. And what a success the debut was. <br /><br />On the first day of trading in Sichuan Expressway Co, the stock was suspended twice as it soared 300 per cent above its issue price, but pulled back for a gain of over 200 per cent on the day. Tomorrow China State Construction Engineering lists its shares in Shanghai, and another frenzied debut is expected.<br /><br />But this equity market fairytale could prove to be short-lived. Even before global stock markets slumped it was apparent that Chinese companies were producing and selling goods at below cost in order to build up market share and boost employment. <br /><br />And in order to fuel that boom, Chinese banks were lending at a tremendous rate and many of these loans have not been repaid.<br /><br />Now exports are down sharply, with the US consumer and other Western markets unable to mop up production, while domestic demand is not strong enough to pick up the slack. <br /><br />Yet China managed to post GDP growth of 7.9 per cent in the second quarter of 2009, a fraction less than the 8 per cent target and strongly up from 6.1 per cent in the first quarter. <br /><br />But given that exports have fallen, where is this growth coming from? <br /><br />It is being driven by the stimulus package, which is worth an eye-watering 4 trillion yuan ($586bn), which is equivalent to one third of the country’s GDP. And as we found out to our cost here, cheap and easily available credit often leads to poor investment decisions. <br /><br />We should not bank on China pulling the world out of recession any more than China can rely on consumption from the developed world to keep its growth rate up at 8 per cent. <br /><br />In the long term, China represents superb opportunities but right now it looks overcooked. If you already have exposure then hopefully you have a cushion if the market corrects. If you’re thinking of investing now, then make sure it’s with money you can afford to lose.