The conclusion of yesterday’s post has been that yes, most Chinese domainers invest in a “pump and dump” manner.

Today, let’s talk about *why* that happens.

I’d say the primary reason is the fact that, as mentioned on other occasions, most Chinese investors are beginners. Sure, there are lots of very successful domain veterans for China but most investors (the overwhelming majority) are beginners. Have you been a calm, calculated investor back when you were starting out? Probably not, I know I haven’t. As such, let’s not be too harsh when talking about beginners from China because they tend to make many of the same mistakes we’ve made when we were starting out, fundamentally speaking.

The second reason is related to the way things stand in China economically and socio-economically speaking (for a detailed multi-article analysis, visit this china fund site). There’s a lot of “hot money” that’s being poured into all sorts of assets from China because a lot of Chinese are worried. That their economy will crash, that their currency will drop and so on. As such, when certain market conditions present themselves, lots of Chinese investors desperately (this word is very important: desperately) try to move money abroad and domains represent one of the vehicles they’ve chosen. I’d say the “pump” behavior is frequently dictated by desperation.

The third reason may very well be that there’s a deliberate manipulation taken place. As mentioned previously, there are definitely experienced and well-funded investors in China. Investors who have enough capital, experience and connections to pull off various types of manipulation. Stuff like buying domains among themselves to generate initial interest/buzz, for example… do keep in mind though that no matter how well-funded and connected they are, they can still lose control eventually. But still, I’d say it’s fairly safe to assume there’s at least some degree of manipulation taking place in a “wild west” market such as the Chinese one.

… these three reasons represent a decent enough starting point.

Feel free to add to the list or share your 2 cents by making a comment.