China questions not to pass over This is a holy juncture. Christians are celebrating Easter, and Jews Passover. A ritual common to both is the Jewish seder - a dinner in which Jews remember the exodus from Egypt. Jesus's Last Supper, which gave rise to the Mass, was a seder. At a seder the youngest person has to ask four questions about why this night is different from all others. The Long View also asks four questions each Passover about why things in the market are different from how they usually are. This year's questions are all about China, giving it a flavour of the food Jews eat at Christmas, rather than Passover. Why are property prices increasing again, when experience of housing bubbles elsewhere suggests they should be falling? After the huge 2008 stimulus with which China staved off the financial crisis, property prices shot up, causing bubbles in the biggest cities. People in Beijing and Shanghai complain that they can no longer afford to live there. A correction was under way by the middle of last year, but then prices started rising again; official figures show Beijing rising at a 6 per cent annual rate. According to UBS, prices are rising or stable in all but two of the 70 largest cities. The best guess: the authorities were nervous about the bubble bursting just as power changed hands last year. By injecting more credit into the system, they spurred housing activity and stopped the bubble from deflating. Which leads to another question: How did credit start to expand again last year, when the authorities had seemed determined to rein it in? China relies on credit. And the authorities, unlike their US counterparts, can turn on the credit tap at will - as they did last year to ease the political transition. But they do so rather too effectively. As the chart shows, bank credit tripled as a share of the economy during the 2008 stimulus, and rose sharply again last year, both times galvanising equity markets. In part this is because of China's flourishing shadow banking system. Wang Tao, UBS Asia economist, puts shadow banking at 40 per cent of the Chinese economy - far smaller than the 100 per cent in some developed economies. But extreme fluctuations show that credit could easily grow out of hand. Small wonder that China tried this week to rein in shadow banks. Why are stocks performing so badly when China's economy is growing faster than almost anywhere else? The domestic stock market's long sideways march is what would be expected after a bubble like the one that A-shares (for domestic investors) saw in 2007. Speculators were badly burnt, so no surprise that A-shares are still shuffling along at less than half their highs. But H shares, available in Hong Kong, are also underperforming woefully, as are those western companies whose revenues are most exposed to China. This is because China's growth, though still fast, is slowing. Forecasts for revenues, while still bullish, are coming down, bringing down share valuations. Further, wages grew faster than the economy last year for the first time in the modern era. This helps persuade a restive populace that they will get their fair share of the growth. But it directly attacks profit margins - providing another reason to reduce multiples on stocks. H shares trade at only about nine times earnings, while the US S&P trades at about 15. All of this poses a new and difficult challenge to corporate managers. They have to show they can raise productivity and manage well, not just exploit cheap labour. Why is the currency strengthening when high inflation implies that it should be falling, and when everyone in the west believes it is being held too cheap? China has an inflation problem. Raising real wages worsens it. With much of the population still living at little more than subsistence levels, inflation is a vital political issue. The Communist party cannot let it get out of control. But Fred Neumann, HSBC Asia economist, points out that "core" inflation - excluding food and fuel - is ticking up. One way to keep a check on this is to strengthen the currency. That makes foreign goods cheaper. It also makes it tougher to compete, particularly if wages are rising. But China needs to make the transition from a cheap exports model to a system that concentrates on building the middle class. A stronger currency pushes capital in this direction. Its real effective exchange rate (taking into account inflation) has strengthened more than any bar the currencies of Singapore and the Philippines during the past five years, according to Deutsche Bank. The central bank has been intervening more in recent months to limit this appreciation, but this only shows what a difficult balancing act it has. In the US stocks are at new records. Cyprus is in the headlines. Investors are not asking questions about China. They should.