The stock and property markets are like the two scales of a balance: when one goes up, the other comes down. The reason for that is simple: since the amount of money and channels of investment both are limited, a flow of funds into stocks usually means a dry weather for the property market, and vice-versa.

This is true of all economies. But in China, the two markets can also "co-exist peacefully". In fact, they fuel one another. And at present, both the markets are sizzling to say the least despite all the steps taken by the government to rein them in.

The constant flow of money has already pushed up the Shanghai composite index by about 50 percent this year. And despite the government raising the bank reserve ratio and interest rate several times to mop up excess liquidity in the market, the index still climbed above 4,000 points in May from 2,715 on January 4.

Correspondingly, Beijing's real estate sector is also roaring ahead in spite of the government's measures to cool it down.

National Statistics Bureau data show housing prices in 70 major cities of the country rose 5.6 percent in the first quarter of the year, with Shenzhen taking the lead with a 12.6 percent increase. Beijing ranked third with a 9 percent rise.

A highly bullish stock market does divert some money from the property market, according to leading property brokerage firm 21st Century. "More pre-owned houses have been on sale recently because their owners are eager to sell them off and cash in on the bullish stock market," says a 21st Century source in Shanghai.

The number of pre-owned houses on sale in Beijing jumped 19.3 percent in April over the previous month. In Shanghai, it rose 9.6 percent. It's a different matter that the average price in the two cities increased by 0.4 percent and 0.3 percent, too.

"Given the quick return from stock market investment, people who want to buy a house mainly to improve their living condition defer their plan to do so temporarily," says 21st Century research department analyst Meng Qi. The reason for that is simple. They want to make more money so that they can buy an even better house. "Those who plan to buy a house to move into after marriage or to shift immediately, however, seldom change their plans."

In contrast, the sale of new houses in Beijing in April dropped 14.9 percent year-on-year, according to Beijing Property Transaction Management's website.

Head of Residential Industry Association of the All-China Federation of Industry and Commerce Nie Meisheng says: "The ever-increasing stock benchmark will weigh on China's property market, especially on the markets that see strong investment initiatives." The impact on Beijing's property market, however, will be limited because only one-third of the property bought in the city is for investment purposes.

But again, when funds start flowing into the bourse, it prompts an increasing number of people, who have already made money from stocks, to turn their eyes towards the property market. Wan Qian, a 38-year-old executive, is one such person. She has bought three apartments - in Beijing, Wuhu and Xi'an - in the past 10 months.

Though she refuses to disclose exactly how much she made from stocks last year, she says her biggest single-day gain could have been more than 200,000 yuan. And the first thing that came to her mind when she thought of re-investing that money was an apartment.

Since Wan was born in Wuhu, East China's Anhui Province, she decided to buy an apartment there, so that she could spend her post-retirement life comfortably in familiar surroundings. But why Wuhu and not Hefei, the capital of Anhui? Because Wuhu still has a lot of room for growth, she says. And she is right, for the average property price in the city jumped nearly 50 percent in the six months after she bought her apartment.

Wan says: "After its fast and continuous rise, the stock market has become more risky. So investment in property is a much safer bet, even though the return might be a bit lower." Also, buying property is the ideal way to fight inflation.

Yang Zhen, a 28-year-old reporter, corroborates Wan. He too has made a considerable amount of money from stocks, and is now trying to buy a good apartment. "Trading in stocks is just a means to earn more money to buy a house," he says. "And this is the right time to try my luck because the index won't always climb up like this."

Another lucky man is Xiao. He is ready to get married, and hence cannot wait to buy an apartment. "The property price in Beijing is still growing, and fewer apartments are available today within the Fourth Ring Road," he says. So he has to buy an apartment as soon as possible.

This "peaceful co-existence" of the stock and property markets will continue for some more time, says CB Richard Ellis Director Peter Lin. According to the US property consultant firm's executive, the red-hot stock market's impact on the property sector will not be obvious in the short term. "China's stock market is at a pretty high level now, with the possible profit margin shrinking and potential risks increasing. Thus, investors may quickly evacuate the stock market once it slides. But property investment is usually a long-term behavior."

Lin argues that China's property prices will continue to rise over the next three to five years, fuelled by the galloping economy and strong demand.

Cathy View Courtyard Residencies Marketing Director Chang Lei says the main reason why the stock and property markets are sizzling at the same time is the limited number of investment channels in China. "Since bonds and insurance, popular investment instruments in mature markets, have not caught on in China, people still pin their eyes on stocks or houses," Chang says.

In April, total household deposits in China dropped to 17.37 trillion yuan ($2.27 trillion), a decrease of 167.4 billion yuan ($21.88 billion) from the previous month, the Shanghai Securities News reported. And they may drop further this month as investors rush to withdraw money from their savings accounts to pump them into the stock market.

Although domestic banks have launched their own wealth management products, they can hardly draw away investors from the bourse because the profit margin they offer is barely higher than those for deposits.

The government, too, has realized that most of the liquid cash is flowing into stocks because of the lack of investment channels, and has taken measures to create more choices for investors.

In mid-May, the China Banking Regulatory Commission (CBRC) widened the scope of investments under the Qualified Domestic Institutional Investors (QDII) scheme.

Also, it has allowed mainland commercial banks, which offer overseas wealth-management business, to invest in a wider range of assets, including equities and equity funds authorized by a supervisory authority with which the CBRC has signed a memorandum of understanding.

These measures could yield results in the long run, but for now it seems to be the day of stocks - and property, too.

(China Daily 05/30/2007 page12)