Today in China: Panda Put or Cliff Dive?

In light of yesterday's 6 percent drop in the Shanghai composite, there is increasing speculation about the sustainability of the buildup in Chinese equity markets (see recent post).

China’s stimulus efforts, led by increased bank lending, have caused the economy to look more and more frothy:

Is there a China bubble brewing?  If so, will the Chinese government intervene to avoid a crash (the panda put option)? Or are we in for a sharp correction?  Let's see where the market pundits stand:

On the con side (ie there is no bubble) we have voices such as Goldman Sachs and JPMorgan.

Goldman's teflon traders are recommending:

Stay invested… We maintain our positive market view on A shares and think the government’s pro-growth policy stance, which should ultimately lead to macro/earnings recovery and a favorable liquidity setup, will continue to bode well for equities.

JP Morgan's Jing Ulrich, chairman of China equities and commodities, believes the worst is over:

The 17 per cent slide in the Shanghai Composite index since August 4 is mainly a “phase of correction” soon to run its course, says Jing Ulrich, chairman of China equities and commodities at JPMorgan.

Alphaville is more skeptical, citing a recent article from Vitality Katsenelson of Investment Management Associates, who argues that China has been cooking the books on its GDP statistics:

There are no bad times for China. You’d think that an export-based economy would at least take a pause when its exports to the developed world drop off the cliff.  No, not China, which spit out growth numbers last week that are the envy of the West even in the West’s best times. The country showed robust GDP growth while electricity consumption declined. The laws of economics appear to be suspended for the Chinese — but they are not.

They just have “better” accountants — ones that would make Enron’s bean counters seem like dilettantes.

Clusterstock's Joe Weisenthal believes that, yes, there is a Chinese bubble, and that the government will continue to actively inflate it. This Panda Put will come in the form of more spending:

China isn't going to take away the punchbowl -- as we've noted, they just can't. When even the slightest hint of lending curbs recently brought up, the market tanked nearly 7%. Imagine if the threats were real. The bubble must roll on.

Hmmmm. The banks are bullish, while the nerds are bearish. Where have I seen this before?