Late last year China announced its $US586 billion stimulus package. But don’t depend on China spending all the reputed money in stimulating its own economy, thereby saving the world economy. It now appears the Chinese are reinvesting in their own stockmarket.

Up to $US100 billion of China’s stimulus package may have been diverted to the stockmarket, powering the biggest boom in the world so far this year.

Reports on Bloomberg describe the stockmarket surge as surprising, given China’s slowing economy and lack of any sign of an upturn.

Now small Chinese investors are rushing to open accounts, just as they did in the boom years of 2006 and 2007. Investors opened 427,460 new accounts last week, double the figure for the previous week and the largest number for 11 months.

The main gauge, the Shanghai Composite Index was up to 31% this year by the close on Tuesday, before a 4.7% fall yesterday. This is even as exports fell sharply in January, along with imports, indicating a sluggish economy. Inflation is down, but other measures tell of a still troubled economy, even though the government is trying to boost activity with tax rebates, loans and extending other types of assistance.

The rest of the world’s stockmarkets are down by more than 10% so far this year, so China’s boom stands out like a sore thumb.

Bloomberg reported this week:

Chinese companies may be using record bank lending to invest in stocks, fuelling a rally that’s made the benchmark Shanghai Composite Index the world’s best performer this year, according to Shenyin & Wanguo Securities Co.

As much as 660 billion yuan ($97 billion) may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview today, citing money supply figures.

A reported 20 million or more people have lost their jobs in the major manufacturing centres in the east of China and have gone home to their villages, boosting unemployment levels there and raising social pressures on those communities. Thousands of toy and footwear companies along the east and south east coast have closed, throwing millions of people out of work. The housing slump is still hurting.

And yet Chinese investors have charged into the economy, with their purchases financed by billions of dollars of new cash.

New bank lending rose $US236 billion in January: not all of it was for business, or if it was, some was directed into the market according to some commentators.

The Shanghai Composite Index had risen for five straight weeks, with a 6.4% jump last week. But yesterday it fell 4.7%, the largest of the year so far, as stories about the lending surge appeared in local and international media.