How do you fight wishful thinking?

The following is an exerpt from a BusinessWeek article.  You can find the whole thing in my delicious links.  This is a great concise summary of what is up with China's stock markets.

The booming Shanghai Stock Exchange, started in 1990 to raise funds for state enterprises, boasts first-rate facilities, and shares have nearly tripled since 2005. In the first five months of this year, companies raised $17 billion, and issues that will likely fetch tens of billions more are in the pipeline. But despite some improvements in oversight, trading remains volatile, weakly regulated, and driven by rampant speculation. That's in large part because the exchange has evolved little from its original mission. Markets are supposed to allocate capital efficiently to the best companies. But in China, notes Carl E. Walter, managing director at JPMorgan Chase & Co. (JPM) in Beijing, "the primary function remains funneling money to state-owned companies."

Again, it comes down to the cozy relationship between government and industry. Some 95% of the stocks on the Shanghai bourse are state enterprises, and last year no private companies were permitted to list there. But 14 state enterprises did. The reason: By floating 10% to 30% of their shares, state companies can ease their dependence on bank loans without ceding any real control, while insiders make windfalls on the stock offering. Although regulators occasionally fine companies that don't disclose key data, delistings or prosecutions for governance lapses are rare. "The central government wants a healthy stock market," says finance professor Chang Chun of the China Europe International Business School in Shanghai. "But companies are owned by strong local and provincial governments, and they have more connections within the party. [Regulators] are either afraid of going after them or may not have the power to go deeper."