Tag Archives: stock market

What Impact Will China’s Stock Market Plunge Have?

Investors around the world are closely watching the Chinese stock market, which suffered a massive sell-off this week. The Shanghai Composite fell by 8 percent yesterday, and markets in Shenzhen and Hong Kong also fell. In all, the Shanghai composite has lost one-third of its value since June, while the Shenzhen market is down by over 40 percent. All told, Chinese markets are down more than $3.25 trillion. Yesterday’s decline came after the Chinese government attempted to inject money into the markets, ordering government-owned companies to purchase billions of dollars’ worth of stick and the Central Bank cut interests rates to record lows.

International observers note that most Chinese citizens hold their wealth primarily in real estate, so the domestic impact of the stock market declines should be limited. The political impact inside China will similarly be blunted. But the decline highlight China’s slowing rate of economic growth. China is currently experiencing its lowest rate of annual economic growth since 2009, and slowing growth in China is affecting commodity markets for everything from copper to oil.

What do you think? If the Chinese stock market continues its fall, will the sell-off have a domestic impact on China? How might a continued decline affect Chinese politics, if at all? And what might the international impact of a continued decline in Chinese markets be?

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Will China’s Stock Market Burst?

The Shanghai Composite and the Shenzhen A Share stock markets—China’s two largest stock markets—posted large losses yesterday, capping a week of sharp falls. The two markets were down about 13% each. It marked the worst week in China’s stock markets in more than 7 years. Although they are up year-to-date, the sharp losses this week lent weight to speculation that the bubble in the Chinese markets could soon burst. According to Bloomberg,

Fueled by record margin debt and unprecedented numbers of novice investors, China’s market capitalization has tripled in the past year to $9.8 trillion. At 84 times projected earnings, the average stock on mainland exchanges is now almost twice as expensive as it was when the benchmark Shanghai Composite Index peaked in October 2007.

If the Chinese stock market were to fall, it could have dramatic effects both within and outside China. As much as 80 percent of investment in Chinese markets comes from middle-income Chinese citizens, and a sharp decline in their wealth could spark demands for political change.

What do you think? Is China’s stock market a bubble about to burst? If so, what might the effects be on Chinese politics and the legitimacy of the Chinese government? What international effects might a sharp fall in Chinese markets have? How might it affect China’s international influence? Why