China has been surviving under a derived economic system that is under stringent state control. The crisis in China which ensued after the biggest stock market crash since 2007 on August 24 which was also referred as “Black Monday” by the Chinese media. The prominent effects of this crash were:
- Massive fluctuation in commodity prices since 1999.
- American stocks faltered.
- German DAX index was estimated at 20% less than the peak.
- Market currencies such as ringgit and rand that were beginning to grab a foothold in global economy degraded in value.
Many of the prospering markets have regained their positions. However the economic crisis in China has presented formidable worries such as:
- The vulnerability of emerging markets to complete crisis.
- Cessation of the prolonged rallying in thriving markets.
Let us discuss in brief about the various insights into this crisis:
- The devaluation of Yuan resulted in wiping the global equity markets of $5 trillion. Despite being the world’s second largest economy, China has reported falling exports, an array of ominous economic stats and substantial losses of more than 40%, the highest drop since the time of the dotcom intervention.
- The major cause that let China go down was the doing of the state-owned media that encouraged investors to invest massive amounts in investment stocks. The investors achieved sumptuous investments through borrowed money that in turn surpassed the profit margins and economic growth rate. Finally, the investors had to sell their shares in bulk that invited the crash.
- Evaluating the Chinese economic crisis must have offered you some prolific insights as of now. Other facets involved with the crisis such as private debt, shadow banking, local government debts and shadow banking. These factors involved in the China problem can pose as threats since they are inter-related and have a collective influence on the formal banking sector.
The controlled economy of China also has a dominant role in the Chinese crisis. Corruption and influence of bureaucracy in the financial domain are to be blamed for degrading the function of major financial institutions. Moreover, the Chinese economy does not possess adequate measures at hand to counter the decline in GDP. An economy based on concepts and theories without any real implication and sole reliance on exports are also crucial factors in the drop.
On one hand, the economic crisis in China is creating indigenous setbacks while the slow-paced trade also affects economic growth in other countries. According to studies of economic scholars, the Chinese crisis can pose far more detrimental consequences than the Greek fallout from the Euro zone. Emerging as well as flourishing markets such as Germany, Australia and New Zealand face the ire of the slowdown due to their dependence on Chinese imports and exports.
The effect of shadow banking has created nascent troubles for the Chinese economy since the circulation of money within the nation is not a remedy to the economic crisis.
With the recent shutdown of Chinese stock market on 4th and 7th of January, 2016 it is the high time people look for alternatives to invest.