Monday, January 11, 2016

Why is the Chinese Economy in trouble?

1 comment:

  1. This past week, the Dow closed down almost four hundred points, or about three per cent. The immediate issue, once again, was China, now the world’s second-largest economy. The government recently released a set of figures indicating that output from the country’s enormous manufacturing sector is declining.

    Another new statistic showed that the Chinese services sector, which has been growing pretty strongly, is now exhibiting some weakness, too.

    Recently, the government has taken a number of policy measures to bolster demand, such as accelerating infrastructure projects, lowering interest rates, and devaluing the Chinese currency. Does that make me less nervous? Absolutely not.. as the stock market can be driven by emotion.

    For those of us who normally don’t get rattled easily by the fluctuations of the stock market, what happened this week, especially what is happening with China’s economy definitely got my attention as my 401k continued to dwindle.

    Currently, it is negative 4.25% which translates to (-$4,475). I have managed to stop the bleeding a bit by diversifying into money markets, bonds and other vehicle but nonetheless, I am still very concerned.

    It’s hard to know what impact the bursting of the stock-market bubble will have. On the one hand, the Chinese market is relatively small by Western standards, and the number of investors is still small relative to the huge population.

    It’s also true, however, that some of China’s wealthiest people, and its largest companies, were playing the market with borrowed money, and there will be casualties.

    What is unknown, at this stage, is how serious the damage will be, and what impact the fall in prices will have on over-all business and consumer confidence. But in any serious market decline, there is a danger of self-fulfilling cycles developing, which can have a big impact on the economy. Not to mention our retirement accounts.

    Clearly, 2016 will be an eventful year…