Japan And Then Some.(Global Investor)

Byline: Peter Tasker

For those who lived through the late-1980s japanese bubble, today's rip-roaring bull market in Chinese stocks is deja vu all over again. The similarities are striking -- the seemingly unstoppable rise of a new economic superpower, eye-popping trade surpluses, oceans of liquidity and a bull-market psychology that is equal parts hubris, greed and gullibility.

A Chinese bank is now the biggest in the world by market value. Back in 1990, the

five largest banks in the world were Japanese (all of them went bust or had to be recapitalized). The Chinese today are paying top dollar for overseas assets, evoking memories of Mitsubishi Estate's 1989 purchase of the iconic Rockefeller Center, sold at a 50 percent loss six years later.

The list of parallels goes on. Skyrocketing salaries for young analysts and fund managers? A boom in warrants trading? Corporate profits padded out by stock-market gains? An IPO market frothing like a malfunctioning cappuccino machine? It's the same movie with a different cast.

The difference is that many of China's excesses are worse. Since the turn of the century, Chinese stock indexes have soared some 800 percent in dollar terms. That's already way ahead of Japan's 700 percent gain in the eight years leading up to its 1990 peak. At its peak, Japan's Nikkei index traded at five times book value. This autumn, the Shanghai market traded at more than eight times book, a level that no stock market in history has been able to sustain.

Qualitatively, there is no contest. In 1989 Japanese companies had solid track records built up over decades of success. Many of today's Chinese champions are brand new. Managements and balance sheets have yet to be stress-tested in a serious downturn.