The recent stock market plunge in China cost the world’s second biggest economy at least 2 500 billion dollars of stock market capitalization. That is the major reason why the Chinese stock market indexes have lost more than 30% of its value over the last few weeks, Masterforex-V Academy reports.
Are there any threats to the global economy? Let’s find this out. Some experts say there are. In particular, the Managing Director of Metals Solutions says that the global economy and financial system are doomed to slow down due to the stock market crash in China. Apparently, the current state of affairs in the Chinese economy and stock market is way more important that the situation around Greece. The thing is that China is on its way to oust the U.S. economy while Greece is just 1% o 1,5% of the Eurozone GDP. It is not accidental that the Chinese financial regulator had to temporarily ban public Chinese companies and corporations from trading their stocks. This is done to avoid a further plunge while defending the interests of multiple local and foreign investors.
Still, the expert says that this is unlikely to result in another major crisis since the American economy is currently reviving. The European economy may well resume its growth as well after the Greek issue is finally resolved sooner or later.
Still, China is a major trade partner for most economies around the globe and an economic slowdown in China means a global economic slowdown, but not necessarily a major crisis
At the same time, the CEO of Concorde Capital says that there are at least 2 factors we all should keep in mind:
1 – China is a major market.
2 - China is a key driver in the global commodity market as well as other financial markets.
Both of them are influencing the global economy and finances to a great extent since China is a trade partner for virtually everyone out there. With that said, the current market plunge is a bubble rather than an economic crash, which means this is not going to have a devastating impact on the global economy as the local authorities are expected to resolve the issue in the near future to let the Chinese stock market recover.
The major reason for the plunge has too do with corporate management issues resulting in a flight of investment capital. However, this is not going to influence the companies’ operating performance a lot.
It seems like the so-called shadow banking has become a problem for China. Indeed, all those shadow processes going on in the Chinese banking system have finally resulted in a stock market plunge as the result of a bubble burst.
Over the last few years, China was typical of household consumption growth driven by higher standards of living and higher income. Sill, China is a communist country and the local government somehow missed the development of a shadow banking bubble. When the authorities finally noticed it and tried to save the day, it was too late. The first wake-up call emerged around 18 months ago. The authorities managed to cope with it but it was insufficient to resolve the entire problem, which turned to be much bigger than expected.
Since 2000, China has been attracting big-scale investments. However, the tendency started slowing down at some point as the economic growth in China neared the cap. At first, the Chinese economy used to show double-digit gains. Now, it is around 6-7%, which is more natural. This year, the Chinese economy is expected to gain only 5%. While most developed economies are dreaming of such a high growth rate, it is a negative sign for those who invest in China. So, they start reducing heir exposure, only adding fuel to the fire.
On the other hand, if China fails to back 5% economic growth, this jeopardizes the Chinese authorities’ ability to fulfil their commitments, which may become a serious issue for a country with over a billion citizens.
Other factor to consider:
1 - China is the world’s second-biggest economy after the USA.
2 - China is the biggest holder of the U.S. debt (T-bonds). This may put the U.S. Dollar in jeopardy as well.
3 – China is one of the biggest holders of physical gold. Therefore, the situation in China may directly affect the market of gold.
4 – China's economic problems are impossible to resolve with the help of international loans from the IMF and other institutions. The IMF has only $400 billion while the Chinese economic is worth thousands of billions of dollars.
With that said, if the Chinese economy has much more serious problems, this is going to trigger an unprecedented global crisis. Still, experts say this is the least likely scenario. As for predictions, they are hard to make regarding China since the Chinese like thinking long-term.
