China stocks drop over 8%
reuters.com
reuters.com
The politics of it, well that is interesting. The Chinese government is acting a little panicky. Suspending trading, banning "malicious" selling, state supported margin loans.
It makes me think that they may have taken on the pundits' belief that the chinese public will support the CPC regime only as long as rapid economic growth is part of the package, that any economic troubles will result in regime change.
IMO, that's the storyline to watch.
The fundamentals of the Chinese economy remain strong and the the Communist Party's panic-stricken attitude isn't helping matters much.
http://www.economist.com/blogs/freeexchange/2015/07/chinas-s...
It's also entirely possible that the CPC could survive a full blown high street recession. I don't really know. But this is a game of he thinks she thinks that I think. The CPC seems to be reacting (so far, not that severely) in ways that suggest they are worried. I suspect they are worried about political consequences, not just economic ones.
Nothing has happened yet. I'm just speculating. But, I'll prick my ears if scapegoats start emerging, arrests happen, someone is accused of intentionally sabotaging the chinese economy…
EDIT: meant to say 'next year', not 'last year'
Regarding the past year, the article simply says that "the cumulative capital outflow over the past five quarters [is] $520bn."
The rules changed so that housing can be used as collateral for margin lending, so a lot of them could have lost a lot.
P/E was about 100. In some cases, earnings might be fabricated. Get a loan (requires good connections), fake revenue, IPO, use the high stock valuation as collateral for the loan (I think this is allowed in China). Get more loans. Fake more revenue. Embezzle a bit. Usually they mean well, and aren't just outright cons, but there was apparently one big one the Hong Kong Exchange (which is usually more rigorous).
Housing can be 10X income. In some places 20X income. It's partly due to the government forcing down interest rates (tightly regulated banks - so savers may have negative real interest). Banks put a loan as doubtful if the debtor has stopped trading for 6 months, so there could be a lot of debt that's not so solid. And no-one knows what GDP is, but it might not be growing as fast as the government says.
An Asian country, with a median age over 35, crony capitalism, high savings rates, possible asset bubbles, a possible stock bubble, a government that's likely to go for bailouts rather than restructuring, and everyone thought it was going to own the US in a few short years if it doesn't already ... sound familiar? Japan, 1990?
Let me explain - China will bail out banks, state-owned enterprises (typically way less efficient than the private sector in China), and local governments. That ties up capital investment - the main people able to invest will be inefficient / corrupt cronies. Not so great for future growth. They might purge a few officials / bankers, but their replacements will not be much better (and maybe just from the right faction / family).
Just to big up a blog (quite bearish, but the guy's solid - it's not Zero Hedge) - http://www.baldingsworld.com/ is pretty good. He's typically said that the stock crash isn't that relevant - there's deeper economic problems, and while a stock crash might be a catalyst it's not the major worry (since the entire market cap isn't that big). It is a political worry though - the government lost a lot of face when they cheer-led stocks, then bailed them out, and they're still not doing as well as many people hoped.
I joke that at least the government is focusing on stability and fundamentals though - they started rounding up human rights lawyers.
This despite threats of arrests to "malicious sellers", "an $800B worth of public and private money enlisted to prop up its wobbly stock markets" (10% of its GDP), and government intervention on at least 40 different occasions in the past month:
http://uk.mobile.reuters.com/article/idUKKCN0PX0AU20150723?i...
https://en.wikipedia.org/wiki/Nasdaq_Composite#/media/File:N...
The only downside is that it took 15 years for the NASDAQ to recover to that frothy level. I do not know enough about China's markets to make any predictions though.
The VC market for tech companies basically died after the NASDAQ crash in 2000 for a good 3 to 6 years (I do not know precise times as it was a little before my time.) I think that is because a lot of VC's lost liquidity and couldn't make further on investments in their existing porfolio, there was very little M&A action, and there was no real IPO market. Thus these bubbles, even if they do not wipe everyone out can have serious long term effects for segments of the economy.
This is likely more serious than the NASDAQ because it is the general market rather than a tech specialty market -- but take all this with a grain of salt as I knowing nothing really about specifically China's situation, just making analogies with what happened in North America.
Not to mention there are stocks listed on the exchange that literally do nothing. Very much like the Dot Com bubble. I heard a story about a public company trading in China's A shares that is developing an "invisibility cloak."
I suspect the market will rally back hard, maybe even tomorrow, but over the next 6 months? I wouldn't want to touch it.
Too much of that money is off the books, too many of its employees are unreported. Most estimates put it between 10 and 30% of GDP. I think even that is too low, count me with Shaun Rein of China Market Research Group --
"The official economic growth numbers are not too high at all. They’re too low.
Why? Because China’s underground economy is far bigger than the 10% to 20% of the total economy that most economists estimate when they do their calculations. Politically the government can’t admit that. A decade ago the U.S. Treasury estimated that 50% of Russia’s economy stayed underground, evading onerous taxes. China’s underground economy as a portion of the overall economy is at least as large as Russia’s."
However, as Rein points out, Credit Suisse and almost all other studies of the Chinese Underground Economy, are only capturing data about Urban hidden capital. It is a commonly understood fact in China, if not quantifiable, that most rural families keep their money in cash, and are very quiet about the quantity of said money.
Besides, in the end, even assuming you are completely correct, their stock market it completely decoupled from their economic situation. Even if their economy was growing 10%+, the valuation (F P/E & P/E) is extremely exaggerated.
If the growth is outside official channels and unable to be reported on a scale of 50%, "bringing it into the light" would likely cause a major recession/depression all in of itself.
It functions because its unregulated, untaxed and its margins are improved by hiding. Once you add those additional expenses, alot of that business will crash.
I can't imagine that they don't see the benefit to the laissez-faire economy. They just can't admit that there's a benefit, it goes against the party line. If they didn't see the benefit I'd have to believe they'd be doing more to capture those assets.
http://www.heritage.org/index/explore?view=by-variables
China's tax burden as a % of GDP is lower than the US.
United States 24.3% of GDP
China 19.4% of GDP
Businesses that can't function in that environment aren't sustainable at any reasonable tax level.
The US has higher taxes as a percentage of GDP, but we also have significantly more effective spending of said tax revenue. That lowers the 'effective burden' of that tax rate. Also, the comparative poverty of the Chinese populace makes that tax-rate significantly more painful to the people paying it.
While China has lower taxes as percent of GDP, the 'effective burden' is higher as the government provides little value to the general populace, and takes a considerable amount of their purchasing power away.
Given we have pretty thoroughly defunded things like the VA, IRS, highways, etc. I'm really not sure why you are convinced China is extremely terrible.
China, on the other hand, still having widespread government ownership of the economy, spends a significant portion of it's taxes on managing (mismanaging) their infrastructure and intellectual resources. That unfortunately only leaves about 6% of their $2.2 Trillion budget for healthcare, all the while, not having a private healthcare industry to fill the gaps. If you've been paying attention to China at all in the last few years, you would be well aware of their many literal bridges to nowhere, empty cities, and "san gong" spending.
Zhu Lijia, a professor of clear governance at the Chinese Academy of Governance 国家行政学院, puts "san gong" spending (or spending on luxury yachts, private planes, lavish dinners, etc.) at 1 trillion yuan, or 30% of total government expenditure.
http://kff.org/medicare/fact-sheet/medicare-spending-and-fin...
23% of the Budget
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Doc...
Receipts for 2014 was ~$3 Trillion.
http://www.cbpp.org/research/policy-basics-where-do-our-fede...
> Medicare, Medicaid, CHIP, and marketplace subsidies: Four health insurance programs -- Medicare, Medicaid, the Children's Health Insurance Program (CHIP), and Affordable Care Act marketplace subsidies -- together accounted for 24 percent of the budget in 2014, or $836 billion.
1) So how exactly did you conclude "half"?
2) Where exactly did you get $1 trillion from? Even with four programs which are often confused into just "Medicare and Medicaid" we don't hit that number.
3) How can you expect me to take you seriously at this point?
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> We can afford to do that because of broad private-industry spending in R&D, Universities, Telecom, and other forms of central infrastructure. The value that those programs provide to our population are measurable and direct.
http://chinaglobalinsight.com/wp-content/uploads/2015/05/Chi...
> China’s investment in research and development (R&D) is second only to the United States. Here, we analyse the data to give a snapshot of how and where the money is spent. By Xiaole Ni.
http://www.forbes.com/sites/gordonchang/2015/05/24/did-china...
> Wednesday, the Chinese central government announced both the allocation of 1.13 trillion yuan ($185.8 billion) for upgrading internet infrastructure and the creation of a 124.3 billion yuan fund for affordable housing. These expenditures follow Monday’s authorization of six new rail lines costing 250 billion yuan.
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> China, on the other hand, still having widespread government ownership of the economy, spends a significant portion of it's taxes on managing (mismanaging) their infrastructure and intellectual resources. That unfortunately only leaves about 6% of their $2.2 Trillion budget for healthcare, all the while, not having a private healthcare industry to fill the gaps. If you've been paying attention to China at all in the last few years, you would be well aware of their many literal bridges to nowhere, empty cities, and "san gong" spending.
Look, the gap isn't "mismanagement" its simply the fact they are per-person poorer than other nations and the US simply has to spend ridiculous amounts to get "average" results. You can't, mathematically, spend 17% of your GDP on healthcare without US level incomes and still pay for everything else.
http://www.bloomberg.com/news/articles/2012-08-29/china-heal...
> Aug. 30 (Bloomberg) -- Health-care spending in China will almost triple to $1 trillion annually by 2020 driven by an aging population and government efforts to broaden insurance coverage, according to a McKinsey & Co. report.
> China will spend more on drugs, medical devices and hospital treatments as it lifts spending to 7 percent of gross domestic product, from 5.5 percent, or $350 billion, in 2010, McKinsey said yesterday. This will make it the biggest market globally by 2020 after the U.S., which in 2009 spent $2.5 trillion, or 17.6 percent of its GDP, on health care, said the consulting company.
Seems to me, they are catching up as fast as a low-per-capita income country cound for healthcare spending. The sheer waste in the US healthcare system is truly phenomenal compared to its quality. I have an uncle who is a doctor who is literally planning to retire to another country because he believes he can get better quality care for a third of the price as well as a lower cost of living.
Quoting the US's outrageous spending as a percentage of GDP as "good" is nuts.
http://data.worldbank.org/indicator/SH.XPD.TOTL.ZS?order=wba...
The UK spends ~9.1% which is all China needs to reach as it becomes possible for them to get a quality, first world healthcare system. They don't need to spend 17.1% of GDP like the US does. Its obscene how badly mismanaged the US's system is.
Hell, Israel is at 7.4%.
http://www.washingtonpost.com/news/to-your-health/wp/2014/06...
> The United Kingdom, which spends just $3,405 per person on health care, placed first overall in the comparison of 11 nations that include Australia, New Zealand, Switzerland, Canada, France, Germany and others. (Previous surveys examined smaller numbers of nations.) In 2004, the U.K. ranked third of the five nations studied.
My "about half" number was intended to include Social Security, I misspoke. The point isn't about healthcare spending. It's about programs of "measurable and direct" outcome to the benefit of the population. (This distinction is common, as is evidenced by the Forbes Tax Misery Index -- http://www.forbes.com/global/2009/0413/034-tax-misery-reform...).
Your R&D link doesn't at all respond to my point about R&D as a fraction of taxes, as it doesn't separate government-owned industry from truly private industry. Keep in mind that 74% of major companies in China are state-owned.
Your quote -- "Wednesday, the Chinese central government announced both the allocation of 1.13 trillion yuan ($185.8 billion) for upgrading internet infrastructure and the creation of a 124.3 billion yuan fund for affordable housing. These expenditures follow Monday’s authorization of six new rail lines costing 250 billion yuan." -- directly supports my position that the government of China is forced to allocate tax capital to infrastructure expenses because they do not have adequate private infrastructural management.
If China is planning to increase their Healthcare expenditure 10-fold, that will come at the expense of higher taxes, as again, they are not prepared for the private management of infrastructure.
While the point about US healthcare "mismanagement" is largely irrelevant in a break-down of tax expenditure, it's worth responding to, as that is a commonly held misunderstanding about the American healthcare industry:
That belief is largely derived from the fact that healthcare R&D, and the costs associated with it, are not factored into the international cost equation. Yes, American Healthcare is expensive, but it's also driving global healthcare outcomes forward. Those countries with low costs are benefiting directly from our healthcare expenditures, without paying their fair share, because they don't respect our patents, and push their costs off onto American tax payers by threatening to just steal our medicine if we don't give it to them at a price they agree with.
To put a fine point on that, the US had 32,139 Biotechnological patents, and 43,317 Pharmaceutical patents from the period of 2001-2009. The UK produced 3,062 & 5,693 in that same period, that makes them fourth in the world, and they still produce roughly a tenth what we're producing in terms of medical R&D. Yes, their healthcare system can operate very cheaply, but it does so at the cost of innovation, and on the backs of the American medical system. Given that we are producing the vast majority of the world medical research, the impetus for increased costs in our healthcare system should be obvious -- we're producing most of the medicine. If we nationalize our medical system, yes, we could get prices down too, but we'd also be destroying the world's medicine R&D system in one fell swoop. (http://www.wipo.int/export/sites/www/ipstats/images/wipo_pub...)
Not really. You take "big numbers" as some magical comparison point between countries.
> To put a fine point on that, the US had 32,139 Biotechnological patents, and 43,317 Pharmaceutical patents from the period of 2001-2009. The UK produced 3,062 & 5,693 in that same period, that makes them fourth in the world, and they still produce roughly a tenth what we're producing in terms of medical R&D
...you are seriously quoting patent numbers of massively disparate populations?
Lets try to get this apples to apples:
75,456=32139+43317 vs. 8,755=3062+5693
319 million vs. 64 million. Or roughly 20% the population. 18,124,731 vs. 2,853,357. Or roughly 15% the economy.
75,456.15=11,318.4
1) If you scale that based on the size of the economy...yeah. The UK very much is "innovating" at the same pace as the US, its simply the US produces more patents because of its broken patent system and the difference in the size of the economy/population. Comparing a static value across such different economies is silly but since you insist...
2) ~9% GDP they get about 77% the R&D results. The US spends 17%. Double for ~23% increase in patents, a large portion of which are evergreen and overbroad patents that the US patent office rubber stamps.
> If we nationalize our medical system, yes, we could get prices down too, but we'd also be destroying the world's medicine R&D system in one fell swoop.
Not really. The Government in the US is the largest funding source for medical research and funds almost half of it.
http://www.npr.org/sections/health-shots/2015/01/13/37680135...
Like many others, you delude yourself into believing "Government R&D bad!" when in reality its where about half of the advances the US generates comes from.
The Internet, medical research, basic science in literally every field, etc. All government.
Second of all, the wonderful US system heavily encourages patents in ways other countries do not which is why we are attempting to force it on them via TPP and others:*
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3680578/
> In the pharmaceutical trade, when brand-name companies patent “new inventions” that are really just slight modifications of old drugs, it’s called “evergreening.” And it’s a practice that, according to some who have looked into it, isn’t doing a whole lot to improve people’s health.
> “Typically, when you evergreen something, you are not looking at any significant therapeutic advantage. You are looking at a company’s economic advantage,” says Dr. Joel Lexchin, a professor in the School of Health Policy and Management at York University in Toronto, Ontario.
http://thehill.com/blogs/congress-blog/foreign-policy/245785...
> The TPP’s impact on access to essential medicines is alarming and extensive. Leaked texts reveal language that would “evergreen” and extend patents without just cause, enhance the monopoly rights of drug companies, and establish precedent-setting limits on generic medications that impact not just TPP countries, but the region as a whole. These restrictions on life-saving affordable medications in the developing world also threaten access to medications here in the U.S.
Those numbers are heavily misleading due to that. The US is actively fighting to extend that and force it on other countries with their trade treaties.
> “The response from the brand side is that they are trying to protect their markets so they can further invest in R&D [research and development]. And even if they make a modification to a drug, doctors are still quite able to prescribe the generic version of the older product. Having said that, the brand-name companies put an awful lot of money into marketing the newer version, and that marketing is designed to affect what doctors do.”
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> If China is planning to increase their Healthcare expenditure 10-fold, that will come at the expense of higher taxes, as again, they are not prepared for the private management of infrastructure.
...they need to raise it about 3.6% and are currently spending 5.5%. That isn't "10-fold".
> My "about half" number was intended to include Social Security, I misspoke. The point isn't about healthcare spending. It's about programs of "measurable and direct" outcome to the benefit of the population. (This distinction is common, as is evidenced by the Forbes Tax Misery Index -- http://www.forbes.com/global/2009/0413/034-tax-misery-reform...).
...that is a completely different point than the one you were making. You can't just change the goal posts like that and throw about outright lies and expect me to take you seriously, so I'm done.
http://www.scmp.com/news/china/article/1376652/chinese-scien...
Worth noting: in the past few weeks, Chinese government tried very hard to stop the fall and prevent a crash - preventing selling by large stock holders, criminalizing short-selling, ordering stock buybacks, outright buying stocks, relaxing margin requirements, stopping IPOs, ...
Obviously, that's not a viable long term solution.
>In 2008, U.S. regulators banned the short-selling of financial stocks, fearing that the practice was helping to drive the steep drop in stock prices during the crisis. However, a new look at the effects of such restrictions challenges the notion that short sales exacerbate market downturns in this way. The 2008 ban on short sales failed to slow the decline in the price of financial stocks; in fact, prices fell markedly over the two weeks in which the ban was in effect and stabilized once it was lifted. Similarly, following the downgrade of the U.S. sovereign credit rating in 2011—another notable period of market stress—stocks subject to short-selling restrictions performed worse than stocks free of such restraints. [0]
Short selling allows market participants to put downward pressure on a security earlier helping the security reach equilibrium faster. Also, allowing the short sale of a stock incentivizes research that bring new less favorable information to public view. For instance, ability to profit off the decline of a stock may result in market participants in uncovering and reporting fraud or helping to pop bubbles.
Often times government interventions and restrictions in the market fuel panic.
[0] http://www.newyorkfed.org/research/current_issues/ci18-5.pdf
Thanks for the correct. Unfortunately too late to edit my original comment.
Did you accidentally a word?
For genuine science you'd have to have a control group. "The same group two weeks later" is not a control group.
>Short selling allows market participants to put downward pressure on a security earlier helping the security reach equilibrium faster.
This is story-telling. What happens has more to do with barely sentient flocking behaviour than "reaching equilibrium." There is no "equilibrium" to reach. There are only more or less naive and information-poor actors looking at each other and trying to out-guess the movement of the flock centroid.
It's like running an economy on the basis of a ritualised spot-the-ball competition.
If markets had any real interest in equilibrium or efficiency, bubbles wouldn't happen. But markets don't - mostly they have an interest in short-term gain, which makes the whole system as predictably unstable as any other system driven by positive feedback.
Of course some agents profit very nicely from bubbles, and politically bull markets are a useful way to create an illusion of shared prosperity. So it's in their interests for the manic-depressive nonsense to continue.
So Astronomy isn't a science?
Maybe the second part of my sentence about short-selling was a bit of a reach, but short selling does provide downward pressure on prices which would (in theory) more accurately reflect the actual value based on what other market participants are willing to pay for it.
Prices are not arbitrary and are the best way to convey information. Trying to control markets by controlling prices is like trying to control the weather by controlling thermometers.
The Fed and ECB's goal is not to prop up stock market valuations, but to help the economy by encouraging spending and investment through moderate inflation. The banks are tightly bound by inflation targets. Arguably, the ECB has done too little QE since nominal GDP has barely (or hasn't) recovered in most of Europe since 2007, and inflation has been way under target since the crisis.
It seems like China's reaction is more panic-driven, and doesn't have a framework such as inflation targeting to constrain it. In addition, this intervention is just to prop up stock asset prices; encouraging spending and growth in the whole economy is not the primary goal.
[1] http://uk.reuters.com/article/2010/08/06/us-eu-shortselling-...
It remains to be seen to what affect recent US Fed policy will do long term, however, I would argue that it was definitely a panic driven reaction.
I provide this not in support of China's policy but for context.
Excess Reserves https://research.stlouisfed.org/fred2/series/EXCSRESNS
Overnight Rate https://research.stlouisfed.org/fred2/series/FEDFUNDS/
Federal Reserve Balance Sheet https://research.stlouisfed.org/fred2/series/WALCL
The US government was primarily trying to keep some big companies and banks that were caught in a liquidity crunch from going bankrupt, because them all going under would likely be a spiraling problem. The crisis solution was also rather simple in aggregate...loan them a bunch of money temporarily until they could free up the assets to repay it.
China is currently trying to prop up a stock market that is STILL (even with today's decline), up 50% in a year for no reason. And most trading in the market is done by very jittery small investors (who are also overleveraged and now desperate to get out) rather than big firms and funds. Said small investors are unlikely to be reassured by anything the Chinese government can possibly do. I don't see great chances for the government to be able to stop this from returning to a more realistic valuation.
Or a full-blown market correction even.
1) Workers buy into "it always goes up over a long period" so retirement money gets tossed into the market. However they're likely (temporarily?) unemployed or underemployed.
2) There normally exists a small but lively trading on margins market, day trading market, etc. However the margin / daytraders have been wiped out in the crash and it'll take awhile to grow a new crop of suckers.
3) Stable prices mean stable financial market means stable income for capex means stable growth. Collapsing prices make it hard to raise funds for capex. So you can't make more profit next quarter off a refinery expansion today if you can't raise the dough to do a refinery expansion today due to collapsing prices.
When things stabilize you'll pop back up to normal growth and prices. That might take weeks to decades based on past bubble experiences. DJIA only took from 1929 to sometime in the 50s to break even, inflation adjusted, so it could be 20+ years. Or maybe just a couple months. This being an epic 1929 scale bubble it could very well be 20 years.
I do acknowledge the stereotypical retail investor thing of always selling at bottoms and buying at tops due to animal spirits or whatever, but there are rationalizations beyond the future must be the same as the very short term past.
Janet--raise the interest rate! The poor, and middle class are hurting! Enough is enough! Get CD's back to 5 %? The big boys are just playing at this point. Banks are not giving back?
If so, it would seem that raising interest rates would differentially harm the poor.
Here's what will actually happen in the coming months, China will keep on intervening in the stock market causing it to stop falling (because selling will be impossible). Investors will see their money become valueless because it's held up in worthless Chinese stocks killing whatever trust they had in the Chinese government. Then China will reach a period of 10 to 30 years where its market will not grow (because of lack of trust in the Chinese government).
If Chinese investors can get hyped enough to drive up valuations to 3000 p/e then they can also have a market panic.
BREAKING: Shareholders of 9 listed firms incl. Southwest Sec (600369) under CSRC investigation for illegally selling stocks -company filings
— George Chen (@george_chen) July 27, 2015
China Securities Regulatory Commission urges everyone to report illegal trade and you can report malicious sellers at http://t.co/xNGiLniBLq
— George Chen (@george_chen) July 27, 2015
China Securities Regulatory Commission says to continue to monitor market activities and will forward case to police for arrest if necessary
— George Chen (@george_chen) July 27, 2015
CSRC spokesman: Can't rule out possibilities some investors are still "selling stocks maliciously"; regulator will continue to investigate
— George Chen (@george_chen) July 27, 2015
CSRC spokesman: we welcome all parties in society to provide clues about, report those who conduct malicious selloff. Hotline +8610 88060082
— George Chen (@george_chen) July 27, 2015
CSRC spokesman: China's state agency for margin finance has not "quit market" and will continue to increase stock holdings "at proper time"
— George Chen (@george_chen) July 27, 2015
Remember Mao's Cultural Revolution? Now there is Cultural Revolution in Chinese stock market: welcome everyone to report each other! Insane!
— George Chen (@george_chen) July 27, 2015
My view: China stock market crisis now proved to be more than market crisis but crisis in governance - show how incompetent, insecure gov is
— George Chen (@george_chen) July 27, 2015China isn't cool. Even the Chinese elite drive Western cars, watch Western entertainment, wear Western brands, and so on. Given that China's labor costs are nearly equal to American labor, if additive manufacturing strips away their manufacturing ecosystem advantage, there will be little reason to buy from China what can be cheaply made at home or elsewhere. China can make anything that anyone else in the world makes, but "Made in China" is the last thing people expect to see on a luxury product, unless it's accompanied by "Designed in California."
Your example of the American congressman might not be the most efficient use of resources but it is democratic, they are responding to their constituents needs.
The point about complaint boxes is laughable, it's like the companies I worked for with suggestion boxes that ignore every suggestion that doesn't match their world view. If every Catholic complained they couldn't practice their religion without government interference do you think it would make any difference?
China is behind South Korea in development by a generation and Japan by 100 years. Give China another 20 years and lets check back.
[0] http://static.businessinsider.com/image/55800e76ecad047824bc...
Even after these drops SHSZ300 and .SSEC are still valued almost 2X from what they were year ago. This is crazy within a year bubble that is bursting. There will be several 8% drops until markets have retreated just one year.
My (admittedly limited) understanding is that most economists are still expecting significant growth in China this year, though not as strong as previous years.
Also, the recent financial crisis in the US was partially/mostly driven by a debt crisis (housing/mortgage issues), which historically has had far larger and longer-term impacts than a stock market crash/correction.
But, even in the US, I think stock markets are like a balloon tied to the wrist of a toddler on a windy day. They may very generally track where some part of the economy is, but there's too much interference and interpretation to get a precise picture. Even worse, the length of the string is unclear.
The 1987 crash was the largest in US history. In one day, the Dow Jones dropped 22%. Yet, it didn't even cause a recession.
I'm quite worried about it personally.
How much money do Chinese investors have invested outside of China? If they bought Chinese shares on margin, they may end up selling assets globally to cover.
"Commodities in a meltdown, but coal, uranium offer some hope "
"Copper has hit a six-year low"
"Nickel took another hit, ending at $US11,255/tonne while lead shed more value to close at $US1716/tonne."
"Aluminium continues to weaken. ANZ says demand in Europe has failed to pick up, underlying Chinese demand is weak"
Admittedly Australia is just the mining division of China so its hard not to expect them to crash. Still, Australia has been in an impressive housing bubble at least three times over trendline because China only grows and exports to China only grow, well, at least they only and always grow until they don't. That'll have some impact on financials in Australia and then the world.
Nickel, for example, used to be pretty stable, almost "boring" in the 90s and before. Then it tripled in the boom, and has collapsed since then but is still about twice over trendline. This is interesting to think about technologically, imagine the price of NiMH batteries has been 3x trendline for the last couple years and "should eventually" drop to about a third of present price. Of course its little consolation that hybrid cars will be cheaper if you're unemployed because the economy crashed, but "someday" hybrid battery packs will only cost a couple hundred bucks. We might all be standing in church soup lines for food, but at least hybrid batteries will be cheap.
Lenders will probably take a hit since a lot of people were playing with borrowed money.
The credibility of the government will take a hit - many have already been moving money out of the country at a record rate because they don't trust the government, and retail investors who are now losing their savings will start questioning the government.
I wonder what this will mean for the world economy. Are we limping from one recession into the next?
http://www.tradingeconomics.com/united-states/labor-force-pa...
Which isn't intended to disagree with what you are saying, but I wonder if we are just now reaching a point where we will start to see wage pressure.
Check out the USD / AUD exchange rate for a good example of the danger.. A company I worked for used to do a lot of business in Australia. We made the decision to go there when the currency was favorable from the US perspective (about $0.85 USD/AUD), tried to stick it out but got crushed since our money was raised in the US but the rate spiked to $1.1 USD/AUD and stayed above $1 for years. Today, the rate is more like $0.73 USD/AUD. 30+% swings in a few years are poison for international investment.
The Australian economy and currency have been hugely propped up by all of the Chinese demand for raw materials and commodities and is going to really start hurting if there's a prolonged pull-back in China.
Based on my completely non-expert analysis, it looks like the index is likely to drop down to around 2,800-3,000 or lower...unless there is some realistic explanation for an index which was on a slight downward, long-term trend to suddenly jump up by 130% in ~9 months.
Check here: http://www.bloomberg.com/quote/SHCOMP:IND with 1 year comparison.
http://www.bloomberg.com/news/articles/2014-09-03/china-s-st...
Agreed, as long as people don't spend money they don't have :-)
You could be saving too much (example: China with 30-50% income saved) or not saving enough (example: the US, with saving levels around 5%, was actually negative before the Great Recession)
Neither option is particularly good for the economy, but if I had to choose, I'd rather over-save than over-spend.
Already before the rally of the SSE, China was not in a healthy state with large amount of debt.
Now they are printing more money, taking on more debts to prop up the stock market and they've shown everyone that they are powerless.
In the meantime,I speculate that Chinese government will go all out to prevent the SSE from sliding any further. It's government continuity is indirectly threatened. And this is why I can't speculate on China anymore, it's exactly like a casino where you are playing against the house, and they won't let you leave with any large profits and accuse you of cheating.
So when you buy at when the price is on the floor, there is only one direction it can go. Up.