CHINA-ECONOMY: STOCK MARKET
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The financial crisis in China took an ominous turn for the worse over the week-end as investors dumped shares despite government-led measures to stabilize prices. Leading Chinese stock markets fell three to four percent and local investors joined foreigners in a mass exit from what, until recently, had been one of the world’s hottest markets. Over the weekend officials had orchestrated a series of steps aimed at stabilizing a market that had lost almost a third of its value in three weeks. The Shanghai and Shenzhen markets stabilized Monday, though Hong Kong continued to sell off. On Tuesday, the bears were back and Chinese markets fell across the board through midday trading. (Comment: Analysts assess that with trading in the shares of more than 650 companies suspended, the rout could have a long way to go.
Nobody knows where this is headed. China’s markets (still up more than 80 percent over year-ago levels) were due for a major correction, and the warning signs of an economic slowdown have been flashing for some time. China’s export-oriented growth model has long since reached its sell-by date, and the government has been trying to engineer a complex and risky transformation, basing (slower) growth on domestic consumption more than on an ever-accelerating flood of exports.The transformation is turning out to be more difficult than hoped. Powerful vested interests also want to keep the old economic model spinning, and policy-makers clearly fear the possibility that efforts to slow ‘excessive’ growth will work too well and too quickly.
It is assessed that China’s position is more precarious, and even a relatively short term interruption in the Chinese economic miracle could be hard for the authorities to manage. From the standpoint of geopolitics, economic trouble in China would be a tsunami all over the world. The growth slowdown in China has already contributed to falling oil and commodity prices worldwide. Many of China’s neighbors are also exposed to the consequences of a weaker Chinese economy. It is open to speculation whether China will respond to economic weakness by bellicosity, using nationalism to distract locals from their financial troubles, or will it abandon its geopolitical ambitions (like the One Road, One Belt) to focus on solving its problems at home)
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