ADDENDUM: since posting this originally, I have gotten some feedback from the Economist indicating Shanghai a-shares are at a 45 PE. I thus recant my prediction and state it thus. A 40% decline is possible if PE's get to 70.
The mistake is showing a "bubble" on a straight graph and not a semi-log chart.
The assertion by the Economist is that Alan Greenspan's assertion that china is at risk of a bubble is wrong.
The graph to the left is the wrong "bubble-o-meter" and here is why. Bubble are psychological and not mathematical phenomenae. The ups and downs of a bubble are felt in percentage terms by the participants.
The graph to the left tries to articulate with a simple normalized data set that bubbles take 5 years and that the Chinese share bubble is below previous bubbles.
This is a bogus presentation of the facts. If we were to pick the lowest trough of the bubble roughly 4 years into the current curve "roughly equivelant to 75 in this chart and then calculate the rise , we would see a renormalized peak climbing faster than the nasdaq Bubble to roughly over 500 in a much shorter time. Again this would be obvious with a semilog paper and normalized series.
As they saying goes, prediction is hazardous, especially about the future. My personal prediction is for a decline of 70% in Shanghai A-shares from sept. 1,2007. The political fall out will be huge due to the popular participation in the markets. Many "Average" people are now playing the markets and will lose out. The political fallout may require a bail-out by the Chinese government to quell dissent. If that occurs, it could require a major sell off of US treasuries held by the Central Bank. This would cause a slight dollar decline, a potential excuse to let the Yuan rise and potential Rise in US interest rates.
The graph below is not semi-logarithmic, but shows how "normal people" see shares in terms of participation (turnover). A blog about this is here.