I’m no economist, but this sounds really bad. I’ve heard people say before that the bust part of boom and bust cycles happen once every seven years or so. 2008 was the last big crash. If the cycle is true, we’re due one later this year. China is the second largest economy in the world. They are the largest foreign holder of American debt. An economic collapse there will surely spread to the rest of the world before long.
Chinese stocks suffered a huge blow as the Shanghai share index recorded its biggest one-day fall since early 2007.
The Shanghai Composite Index closed down 8.5% at 3,725.56 with most of the plunge occurring in the last hour of trading.
Other stock benchmarks around the world were also lower.In Europe, Britain’s FTSE 100 fell 0.3% to 6,563.67 and Germany’s DAX shed 1% to 11,232.43. France’s CAC 40 dropped 1.1% to 4,999.60.
The fall on the Shanghai market was the biggest one-day decline in Chinese stocks since an 8.8% plunge on February 27, 2007.
Some analysts said the dive was sparked by brokerages restricting credit used to finance stock purchases, also known as margin trading.
Chinese authorities took aggressive steps to stabilise the market after it tumbled last month. But analysts have been sceptical that such efforts could be sustained.
“The continuous check on margin trading by security companies has triggered today’s sell-off,” said Xu Xiaoyu, a market strategist at China Investment Securities. “In addition, the recent economic data shows it still takes time for the economy to recover from its sluggishness.”
The 30% slide in Chinese shares in June came after a year-long rally took the market to multi-year highs even as the world’s second-biggest economy slowed.
A period of stability was achieved after the government announced support measures earlier this month that included forbidding major shareholders from selling any of their shares and ordering state companies and others to buy.
Many companies also voluntarily suspended trading in their stocks on the Shanghai exchange and its smaller counterpart in Shenzhen.
For quite some time now, people have been predicting that much like how the 19th century belonged to Britain, and the 20th century belonged to America, that the 21st century would belong to China. However, there was also a time, back in the 1980s, when Japan’s rapid economic growth had many people convinced that Japan would eventually become the number one economy in the world. Instead, everything went to hell in the early 90s, and Japan has been in a state of slow decline ever since.
I can’t help but wonder, is something similar happening to China as what happened in Japan? Could we perhaps be seeing the beginning of a long Chinese economic decline? Whatever is happening, I predict this much. It’s not going to be good for the economic prospects of the rest of the world.