Moutai shares’ spectacular rise doesn’t reflect full reality of China’s changing economy

Shares in Shanghai-listed Kweichow Moutai Co, China’s top liquor brand, have more than tripled since August 2015, rising from 166.2 yuan ($25.08) to a closing price on Tuesday of 618.03 yuan, making it the highest-priced A-share listing.

Moutai’s success can been seen as a reflection of China’s transition toward a consumption-led economy, but the relatively disappointing performance of good companies in sectors like high technology suggests the country may need to keep an eye on irrational investment in the markets.

As China continued to pivot to a consumption-led economy, a recovery in domestic liquor consumption helped Moutai post impressive third-quarter financial results. Although Moutai’s retail price is usually upwards of $200 per bottle, demand always exceeds supply. In the third quarter, net profit grew 138.4 percent year-on-year.

An unexpected boom in sales may explain the share price surge, but the stock’s high price makes some observers worry about speculation. Moutai is not the only company to turn in a good performance in the third quarter. For instance, PetroChina, the listed arm of China National Petroleum Corp, China’s largest oil and gas producer and supplier, said late Monday that its net profit surged to 4.69 billion yuan in the third quarter, up 292 percent year-on-year.

China’s domestic technology companies are growing fast, but their shares don’t always stand out on the stock market.

Speculation is sucking money into some listed companies’ shares, taking prices to worrying levels. Meanwhile, other good companies are neglected by investors. This situation reflects a pervasive speculative mindset, a problem that deserves attention.

Also, the expansion of a virtual economy divorced from the real economy could pose potential risks to China. The country is working hard to ease into a more sustainable growth pattern. The goal cannot be achieved just by relying on Moutai.

Measures to curb speculation will become part of the effort to balance the development of the virtual and real economies. To pave a smooth way for the real economy, China must continuously deepen reform and opening-up.