Such are the side-effects of globally inter-connected economies:
"China sneezes -- and the US Market catches a cold."
From The Guardian, this latest round of global market 'shockwaves', may be all the result of a well-placed 'market rumor' or two ...
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Wang Xiaolu, a business reporter for Caijing, was detained last Tuesday after writing a story that claimed China’s securities regulator was pondering ending interventions aimed at stabilising the stock market.
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The market in chaos in China led to stock market sell-offs around the world. In Europe markets suffered their worst month in four years in August, with the continent-wide FTSEurofirst 300 index down 9%.
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In the US, the stock market has "
officially" ventured that long expected, long overdue "
10% correction" territory. Classic economic theory holds that such periodic 10% sell-offs are "actually healthy" for a growing stable economy. Such periodic sell-offs can
shake out any brewing 'market bubbles' -- before they have a chance to build-up and "explode" (like happened worldwide in 2007-2008, with devastating long-lasting effects).
The thing is much of this current collapse/shock/correction in US markets, has now been conveniently blamed on China and their 'interventionist ways'. One needs only sample the typical Trump screed, to get a sense of this common anti-China venom. But how much "there" is really there ...
China's economic woes extend far beyond its stock market
by Michael Boskin, theguardian.com -- Aug 26, 2015
The Chinese government’s heavy handed efforts to contain recent stock market volatility -- the latest move prohibits short-selling and sales by major shareholders -- have seriously damaged its credibility. But China’s policy failures should come as no surprise. Policymakers there are far from the first to mismanage financial markets, currencies, and trade. Many European governments, for example, suffered humiliating losses defending currencies that were misaligned in the early 1990s.
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But rapid growth [in China] obscured many problems. For example, officials, seeking to secure promotions by achieving short-term economic targets, misallocated resources; basic industries such as steel and cement built up vast excess capacity; and bad loans accumulated on the balance sheets of banks and local governments.
Nowhere are the problems with this approach more apparent than in the attempt to plan urbanisation, which entailed the construction of large new cities -- complete with modern infrastructure and plentiful housing -- that have yet to be occupied.
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Now that economic growth is flagging -- official statistics put the annual rate at 7%, but most observers believe the real number is closer to 5% (or even lower) -- China’s governance problems are becoming impossible to ignore. Although China’s growth rate still exceeds that of all but a few economies today, the scale of the slowdown has been wrenching, with short-run dynamics similar to a swing in the US or Germany from 2% GDP growth to a 3% contraction.
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An unofficial Growth rate of "only" 5% --
if only all developed countries had such "problems." "Ghost Cities" kind of puts a whole new spin on "infrastructure problems," now doesn't it?
The Problems China Must Fix
by Robin Wong -- theMarketMogul.com
China’s Economy
A few indicators have shown that China’s economy is not as strong as previously anticipated. Starting from 2013, exports of China have slowly decreased and, eventually in 2015, it experienced negative export growth.
One of the main reasons that crushed China’s exports is the appreciation of the renminbi. China’s currency rate had been pushed up, from one US dollar, which translated to 6.83 renminbi in 2010 to 6.04 in 2013. As its rate continued to increase, goods with the same quality in China are more expensive than countries with a lower currency ratio. This explains why China has to lower its currency to boost its exports. [...]
Perhaps, the next step for China is to ramp up it’s spending in the manufacturing sector as a way to stimulate economic growth. [...]
SOOO ... China 'had to' devaluate their currency, in order to spur their sagging "export markets" --
if only all manufacturing countries had such "problems."
Well in most open and free markets, conventional wisdom holds that what is a selling "crisis" to some, is usually also a buying "opportunity" to others ...
It’s already September and Fed rate hike might just be a little too late
by Adip Xion, benchmarkreporter.com -- Sep 3, 2015
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The other factor which has been driving financial markets is China. The central bank has been buying yuan & selling dollar assets in order to help support the exchange rate since the unexpected devaluation of their currency last month.
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With the second largest economy in the world slowing down & global markets being in turmoil, the reduction of Treasuries in China is offset partly by investors who are using fixed-income assets to park their cash.
When China sells some of its "Dollars" -- other investors may see it a prime opportunity to buy "Bonds" ... presumably at 'flooded market' {ie. more favorable} rates.
Who knew?
[ Image Source: robertsreportonline.com ]
Perhaps the latest round of China-Panic is a bit over-hyped? Afterall, as the world's "most populous" nation -- China for all their sneezing-might -- aren't going anywhere soon. Somehow I think they will find a way to right their 'economic ship' ... Long as they can find "buyers" for the US T-Bills they're dumping, why should US markets care -- "Paying the Piper" is already baked into our 21st-century cake.
But perhaps more disturbing than China's lack-luster growth rates and their 'intentionally' devalued currency, AND the peripheral side-effects that may have on other country's "cost of borrowing" -- perhaps more disturbing than all that, is how China is macro-managing its markets, and their crack-down on the voices that dare to speak a negative thing about its somewhat-volatile, "official economic policies" ...
China economic crisis rocks markets across globe
by John-Paul Ford Rojas, scotsman.com -- Sep 1, 2015
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The Chinese slowdown and rattled investor confidence had prompted expectations that increases might be taken off the agenda in the short term in both the US and UK, where the cost of borrowing has remained at 0.5 per cent for more than six years.
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Chinese authorities have arrested almost 200 people -- including journalists, brokers and regulators -- in what they claim is a campaign against those accused of spreading rumours and undermining faith in its stock market.
China has also sought to boost flagging growth, last week slashing interest rates for the fifth time in nine months and recently devaluing its currency, the yuan.
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Now
there's something for the non-wealthy people of the world to 'lose sleep over' ... something worth pondering over their next piping cup of tea.
Such are the side-effects of relying on globally inter-connected economies ... sometimes the 'rumour-mongers' just have to go to Jail.
Chalk it up to "collateral damage" of that now-global "invisible hand."
[ Image Source: philstockworld.com ]
Or in other words, simply the economic "price of progress," in today's ever-shrinking, profit-chasing world.