China’s policy mix, with its artificially low exchange rate, huge current account surplus, burgeoning reserves and consequent excess liquidity, looks tailor-made to generate asset price bubbles. But was the recent boom and bust in the Shanghai stock market really a case of bubble behaviour?

On the face of it, yes. Shanghai A-shares sported a price/earnings ratio of 50 at the peak last autumn. The true p/e, after excluding cross-holdings in other companies, a practice that boosts profits in a stock market upswing, was higher.