This is a blog dedicated to a personal interpretation of political news of the day. I attempt to be as knowledgeable as possible before commenting and committing my thoughts to a day's communication.

Thursday, July 09, 2015

China's Economy Hiccoughs: Violently

"The Chinese economy has achieved critical mass. In 2014 alone, China added a net $872-billion to its GDP. That's just enormous. That, in itself, is very strong evidence that tells us that China is the world's most important emerging market and it will remain that for a long time to come."
"It's a Chinese slowdown [looming recession], but it's a slowdown with Chinese characteristics. So, I'm optimistic."
Dan Koldyk, senior researcher, Export Development Canada

"Of course, we have much more direct linkages with China than we do with Greece. (And) China has a much bigger say in how commodity markets fare than even Europe, let alone Greece. So, it is, potentially, a more important development [the sputtering Chinese market]."
"The counter is to some extent -- and I don't mean to be trite -- some of this is easy-come, easy-go for some of the Chinese equity market. Just as it didn't juice the economy on the way up, it may not be a crippling blow on the way down, either."
Douglas Porter, chief economist, BMO Capital Markets

"The recent numbers suggest a degree of stabilization, rather than a true turn for the better. If there's a bright spot, it's that with inflation having fallen below target, policy-makers have had a green light to unleash a wave of stimulus that could pay off in better actual growth come 2016."
"Note that the huge run-up in stocks that preceded this correction came amid a deterioration in GDP growth. Oddly, we didn't get anyone asking what the implications were for growth when the equity market was soaring."
Avery Shenfeld, chief economist, CIBC World Markets

"If the supposedly omnipotent Communist Party has shown such ineptitude with regard to stock markets, who's to say the same thing won't happen with the wider economy?"
"If China's authorities do lose control of the economy, it will have huge negative implications for global growth, and by implication global stock markets."
Jasper Lawler, market analyst, CMC Markets
Two Chinese paramilitary police officers patrol in front of the headquarters of the People's Bank of China in Beijing - Greg Bakergreg Baker/AFP/Getty Images

The trade colossus whose economic growth and powerful influence on world markets resulting from its enormous production and trade capacity and capabilities is upsetting the global financial experts with its too-sudden dip into recession territory. Not only has the situation confounded and frightened the world market, but the unexpected turn of events has put a huge fright into Chinese financial institutions as well.

To demonstrate just how fearful Chinese companies have become, half the listed companies in China representing about $2.6-trillion worth of equity have stopped trading of their shares. It is unknown how long this suspension could last. "Stocks are being suspended by the companies themselves because many have bank loans backed by shares which the banks themselves may want to liquidate, joining the queues of margin sells", Nick Lawson, managing director at Deutsche Bank explained helpfully.

The Chinese stock market crash wiped out 30 percent of its markets' value in less than a month's time. Little wonder the Communist Party fears losing total control. Officials in Beijing accustomed to total control of every aspect of the country's economy suddenly appear ineffective, uncertain and appallingly out of touch. Their desperation is communicable as investors view their lack of useful response as they rely on hopeful fixes that have done nothing positive, adding to the panic.

The People's Bank of China cut interest rates and lowered its bank reserve requirements in the hope that this would help to boost liquidity and arrest the crash. To which markets responded by crashing again after spiking eight percent. Every day since, Chinese stocks have declined. "It suggests desperation. It actually creates more fear because it shows that they've lost the control", commented Mark Mobius, chairman of Templeton Emerging Markets Group, speaking of government-owned companies instructed not to sell shares.

Beijing's loss of confidence has contributed to the market continuing its fall, despite the government's introduction of new daily policies to try to stem the bleeding. It's clear that the Chinese government is challenged by a new experience for them; their stock market crash: "If the market continues to fall sharply, stock lending-related losses could run into (the trillions of yuan), of which banks and brokers may have to bear a meaningful share", according to David Cui, head of China equity strategy at Bank of America.

But it is the Greek financial crisis and the emerging potential for its Grexit that focuses world attention, right?

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