As the Monday morning bullishness in Asia continues to impress traders in Europe and North America, buying interest in China shares (ACH, GSH, SNP), China indexes (CHXN) and China ETFs (FXI, PGJ, CAF) is certain to gather momentum today. But, on closer scrutiny, the $586 billion Chinese stimulus package which is triggering all the positive sentiment appears to be an illusion of the highest order.

Chinese government officials stated that the stimulus package will focus on housing, infrastructure and post-earthquake construction over the next two years. And bulls seeking feel-good stories are making a number of assumptions on the back of that announcement. Some anticipate that stimulus spending will boost copper, gold and oil prices. Others see a brighter future for Japanese building conglomerates and auto makers. Yet others are forecasting a turnaround in domestic consumer demand. IMF Chief Dominic Strauss-Kahn thinks that the stimulus package will have a positive impact on the World economy. So far so good.

However, the bullish calls on China uniformly fail to take into account that fact that hardly any of the designated stimulus dollars (or yuan) will be spent in the foreseeable future, or even in the medium term.

In the transportation sector, for example, Chinese lawmakers have already legislated on a comprehensive 5-year spending plan way back in March 2006. The plan included (a) six new railway systems and the upgrading of five others, (b) fourteen expressways, including one from Beijing to Hong Kong and Macau, (c) the modernization of transit facilities at twelve Chinese ports, (d) dredging deepwater channels at the mouths of major rivers and (e) expansion of at least ten regional airports. In addition, the Chinese government allocated to flood prevention measures, to the development of water resources and to gas pipelines from Russia and Central Asia.

As of today, each component of the legislation is well under way, albeit along uniquely Chinese timelines. Moreover, as far as post-earthquake rebuilding is concerned, city authorities in Chengdu (the Sichuan capital) publicly acknowledge that the delays in implementing the relief agenda have more to do with bureaucratic hurdles than with a shortage of funds.

So, when, how and where will the stimulus money be spent? There is obviously no clarity from Beijing, and sceptics are already suggesting that the Chinese announcement is designed simply to stave off pressure at the G-20 Summit in Washington later this week. But whatever Beijing’s intentions may or may not be, equity markets are desperate for a dose of optimism, and there is no doubt that China-based shares, indexes and ETFs will attract robust buying over the next 48 hours.

Until, of course, reality dawns. The impending short window will not only be restricted to the China matrix. Copper and oil should also be ready for a pullback by Wednesday, if not earlier, once traders realize that the China stimulus is not going to result in real orders any time soon. The biggest beneficiaries of Monday’s bullishness in Shanghai, Baoshan Iron and Steel (SHA 600019), Anhui Conch Cement (SHA 600585) and China Railway Construction (SHA 601186), should perhaps be avoided in the event that Chinese and Asian investors maintain their belief in the integrity of the Beijing announcement for a while longer.