The main stock markets in China have seen another sharp fall this week, as concerns grow about the state of the country’s economy. The Shanghai Composite, which is the main stock market in China, fell more than 7% on Tuesday, after dropping by even more than that on Monday. What’s more, these falls come after weeks of plummeting values.
Yesterday has been dubbed Black Monday by the media, due to the fact that as well as big losses in China, stocks around the world also suffered. European and US stock markets experienced losses of between 3% and 8%, with a global panic causing everyone to sell up. Black Monday was actually the worst day on the stock market since 2007, when the world was priming itself to drop into a global recession.
Not so long ago China overtook the United States to become the richest country in the world, but in the last few weeks that has changed dramatically. Not only has billions of dollars been wiped off the value of Chinese stocks, but the Chinese currency has also been heavily devalued in an effort to stem the losses. This is almost unprecedented, at least as far as China is concerned. And they should be even more concerned by the fact that the rest of the world has experienced something similar to this in the past, known as the Great Depression.
So why is this happening? Part of the reason is down to China’s success, and its rapid rise to one of the world’s biggest powers. As was to be expected, there has been a recent stagnation in China’s wealth. The profits haven’t necessarily been dropping, but they haven’t been growing at the rate they once grew, and that has caused a panic. When you have such a panic among those who have invested in the country and its success, there follows a big sell-off, with everyone trying to cash-in while the going is still good. That rush to cash-in is what caused the initial downturn, and as soon as things began to look bleak, more and more people decided to sell their investments. It is a downward spiral and one that the Chinese government have desperatly being trying to stop.
The government have tried their best to prop-up the markets. They lowered interest rates in an effort to add to the flow of money in the country, and they have also invested the country’s money in the stock market. These methods haven’t done much to stop the downfall, but it makes you wonder how bad things would be if they had not been initiated. They have also devalued the yuan, the main currency in China, and whilst this was done to help the markets, it may have had a negative impact.
This is a very new country on the face of it, and the main stock exchange has only been going since 1990. Investors in the rest of the world have paid little attention to Chinese markets in the past, but they will be forced to pay attention to it now, because a crash on the Chinese markets will lead to a significantly poorer world. Whether that crash will happen, is anyone’s guess.