China has seen its growth rate drop from double digits to 4-5%. This will continue to depress commodity prices and stocks-but of course, china will (eventually) begin to grow again. so, are we talking 12-24 months? Or could this last much longer? I cannot see this leading into a very long recession.
Technically it’s not a recession until the growth rate drops below zero.
Growth has to be lower than zero for two consecutive quarters to be officially labelled a recession.
It may surprise you but China is growing more quickly than in 2007, before the onset of the Great Recession. “How so, its growth then was >14% and now it’s 5?” you may ask. The answer is, in absolute terms - and not percentage terms - China’s $GDP is growing faster now than back then, but from a higher base. So every year it’s adding more to World GDP than it has before.
Cite: The most recent Economist magazine.
The problems with emerging market growth do stem from the Chinese apparent slowdown, however, as the perceived growth is slowing and so investment to feed that growth in other countries is slowing.
The slowdown in growth is affecting the countries supplying raw materials to China more than first world countries. The problem affecting world markets is not only the slowdown, but also uncertainty about what the state of the Chinese economy is. If the government is trying to prevent internal media from even reporting on the market drop, why would anyone think they are being honest about the extent of a slowdown? Plus, the government has been incompetent at dealing with their market, first inflating it and then trying and failing to prevent a drop by intervention.
Isn’t there some concern that the Chinese GDP numbers are, at best, massaged?
More than some. Pretty much everybody suspects this.
We’ve never been able to trust economic data coming from a Communist country. Even if they report actual numbers, their production has been skewed specifically to produce those exact numbers and will be readjusted after the numbers have been published.
The Chinese economy has had a lot of growth, and much of it is probably genuine, but because it is government-driven, not market-driven, it’s difficult to gauge the health of that growth and thus to estimate the amount of adjustment necessary for China’s markets to correct and the time it will take to do it.
Thank you Voyager I had not yet thought of the impact on third world countries. I wonder if the stock market cares about them?
THere’s a excellent article in the current New Yorker that outlines the rather large disconnect between US and Chinese economies. The bottom line is that exports to China are less than 1% of the GDP and concentrated in a few narrow sectors (fast food being one of them). While the Chinese troubles are hard on a number of third-world nations that depend on commodities exports to China, they have a very minor effect overall on the US economy.
And the Chinese downturn is a major factor in the refined oil market, which is what’s driven fuel prices down in recent months. Low gas prices are a boost to both US economy and consumers.
(The article doesn’t appear to be outside the paywall yet.)
I’m having trouble understanding how a stock market could “care” about anything. That’s like asking if the cards care whether your winning or losing at blackjack.
Can you flesh that question out more?
That’s a little disingenuous. I think a more apt comparison might how how the casino feels (about small-time players who get cleaned out).
And the evidence is plentiful that “the stock market” doesn’t really care who gets trampled underfoot or loses their last dime because the [del]croupiers[/del] traders have only their own interests in mind.
The most interesting factiod I’ve seen re current China Economy:
The Chinese middle class is becoming more of a driving force - the trend is for China to transition from a Foreign Investment/Export model to a Internal Consumption model.
IOW: stop being dependent on outside demands and cash to internal consumer demands.
Long term, this should be a healthy trend - but, for those who make their money (and position) from import/export may be squished a bit.
Absolutely, and who is doing the massaging is as difficult to ascertain as how much. China is a huge country with 1.4 billion people, 160 cities with over a million people, 14 cities of over 5 million people, 900 million cell phone users, 189 billionaires, 2,000 Newspapers, and 40 million private businesses, of which 2,500 are listed on stock exchanges. Trying to keep tabs on all that must be quite a difficult ask, especially as the biggest businesses are run by your colleagues in government who also want to present nice growth.
A couple of interesting articles on the Chinese stock market and economy:
It’s Amateur Hour in China
TL,DR: Chinese government is remarkably inept at managing its stock market and economy.
Exodus of ‘sea turtles’ blamed for China market chaos
TL,DR: The aforementioned Chinese government ineptitude is due in part to expatriate economic experts who came back to China to help the government manage its economy, were treated poorly, and left in disgust.
I thought it was shocking that the Shanghai Composite Index increased by a factor of 2.5 in the past year before crashing. Then I noticed the much bigger bubble in 2005-2007, when the index increased by a factor of 5.5 in just two years before crashing horribly. Yes, you could have quintupled your money in 24 months - if you had managed to time things right.
The “caring” involves whether a decline in the economy of third world countries is positive or negative for particular stocks or sectors the trader cares about. That goes for everything. It is why a decline in unemployment may drive the market lower if traders think it might mean an interest rate hike sooner. That’s “caring” about unemployment but not the way people care.
I’ve read about an index of how dependent a company’s sales are on China. Apple is #1 in it.