Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Just how much trouble is China in?
Tue, 1 Sep Pre-Open

China's meltdown can be taken for granted as one of the big reasons for the current global turmoil. The panic across markets is quite conceivable when the world's second largest economy is stuttering.

A quick recap. There were two major announcements that led to this. One was the China's surprise devaluation of the yuan twice in one week. Next was the release of bearish manufacturing data that showed that its economy is indeed slowing down at a higher than anticipated rate.

Both had their impact globally. As China is the biggest consumer of commodities, this depressed the global commodity prices further. Also the global export competitiveness was affected, as a weaker yuan made Chinese imports relatively cheaper. The manufacturing data compounded the declines on a range of asset classes. Emerging market stocks headed for their worst week in three years. All in all, China has been losing its long held magnetism, and fast.

An article in Economist states how the Chinese economy itself is facing significant headwinds. Exports are stumbling. Bad loans are rising. The industrial sector is at its weakest since the depths of global financial crisis. Further, more stress is emanating from its market situation. Capital outflows from the nation have shot up as investors are giving up their hopes on the economy. A desperate move to stabilize this situation was carried out by the government. The government infused 1 trillion yuan towards buying stocks. This led to no respite however. In fact, such artificial buying rattled markets even more.

Further, debt has reached more than 250% of the GDP. The working-age population in China is shrinking. Goods moved by rail have declined and producer prices are caught up in a deflationary spiral. In fact, reports indicate skepticism that add up all of these factors and the annual growth for nation may be just 2-3%!

All in all, China stands out as a troubled economy. Alarm bells are ringing all around as it could drag other economies down with it. A fundamental reassessment coupled with a range of reforms that take it from an export oriented economy to a consumer driven one seem like the only thing that can open new doors for growth.

While the prospects of this shift happening in a hurry look remote, macro economic developments often have a way of upturning expectations. Only time will tell how China's story, which looks awfully grim right now, will pan out in the years to come.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Just how much trouble is China in?". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 22, 2018 (Close)