Can China Trigger a Global Crisis?

China’s recent stock market crisis has caused a lot of concern globally. Many fear that their stock market turmoil can cause a chain reaction. Stock market experts have been trying to determine whether or not China is worse than what it seems and how will it affect the global economy.

The Shanghai index has revealed that it has lost 15 percent of their value within the past six days. Some are worried that the currency devaluation is the beginning of a bust. Whereas others suggest that it is just a bust. Based off this recent stock market drop and on the one that occurred in August suggests that Beijing might not have as much control over their economy as it once seemed.

The government in China seems to not know whether or not they want to have a cheaper currency or they cannot stop the currency from decreasing at a fast rate. If they are not able to stop the currency from decreasing then there is even a bigger issue.

China seems to be in a credit bubble that it cannot get off of. The country is trying to manage its current economy situation closely. This economic situation is a very tricky situation, especially since the currency value has decreased. If only just the currency value was decreasing, it would still be a tough situation.

Should Beijing Intervene More?

Some actually think they should be involved as least as possible. The reason is because how the situation is being handled can be dangerous.

Dangers of Currency Devaluation
There are a few dangers. One is war within the government itself. This can easily lead to half measures occurring. Half measures definitely will not the help any of the problems at all. It will only hurt them. Second, war within the government itself will make the problems even harder to solve.

Even though China has been going through a stock market turmoil, experts say do not expect their economy to collapse soon. Their economy has actually been growing. This stock market issue will just slow down their growth faster than what many thought. Its growth rate will probably go up 3 or 4 percent instead of 6 or 7 percent like many thought it would.

What Has Caused China’s Economy Growth to be Slower?

There is a good chance that its old model has become outdated. All the way up until recently, citizens in China were only allowed to have one child. The fact that citizens for a very long time were only allowed to have one child has led to a decrease of people moving to different cities there. They could be in danger of running out of infrastructure at some point in the future. Since there has been a decrease of people moving to different cities, it has become harder for companies to be able to export. This has led to them having to pay its workers more because they do not have a constant stream of potential workers that will wages held down.

Yes, if workers make more money they can spend more. That can possibly give the economy a boost, but that is something that is easier said than done. People who are living in China would have to feel comfortable splurging their money. Also, time would have to be allowed for old habits to change. Adding higher paying jobs would also be a plus for the economy.

Experts believe that it is strongly best for Beijing to back out of the economy somewhat. Since workers have more bargaining power, the wages are going up. However, this will only be able to continue if the amount of productivity increases. Employees would have to make more materials in order to make more money in the long run. In order for this to happen, the government would have to deregulate the economy so that businesses there can expand. Back awhile go, Beijing did mention the thought of doing this, but so far its plans have not went through.

Between 2007 and 2015, China’s debt increased from $7 trillion to $28 trillion. The debt includes its government, operations, and household. It will be interesting to see what China will do in order to not make the situation worse. This is something that investors from all over the world will carefully look at and study. Will the Chinese government let the currency continue to decrease? Will they make changes to their job market? Will the fact that now residents in China can have more than one child change the situation for the better? This is something that we will have to wait and see on. . Hopefully the changes that will be made will improve the stock situation Also, hopefully their stock market situation will not cause a very damaging chain reaction throughout the whole world.

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