5 ms·

How bad can this spread to the rest of the world ? I remember 2008 with the US it affected Europe bad, I'd imagine China causing the same effect if not worse..

mmorris 11y ago
A widespread slowdown in China's economy would have major impacts on the rest of the world, but it's important to remember that the stock market is not the economy (just an imperfect measuring device). The stock markets in China have been very bubbly lately. My (admittedly limited) understanding is that most economists are still expecting significant growth in China this year, though not as strong as previous years. Also, the recent financial crisis in the US was partially/mostly driven by a debt crisis (housing/mortgage issues), which historically has had far larger and longer-term impacts than a stock market crash/correction.
- bhouston 11y ago
  The US's whole financial system is tied into its stock market and the financial sector around it (because of leverage and derivatives and every company being public) -- I understand this may not be the case with China? Or am I wrong on this front.
  - mmorris 11y ago
    I believe you're correct that the stock markets in China are less directly tied to the economy than than the stock markets in the US. But, even in the US, I think stock markets are like a balloon tied to the wrist of a toddler on a windy day. They may very generally track where some part of the economy is, but there's too much interference and interpretation to get a precise picture. Even worse, the length of the string is unclear.
  - rhino369 11y ago
    Even in the United States a pretty major crash can have pretty limited economic impact. The 1987 crash was the largest in US history. In one day, the Dow Jones dropped 22%. Yet, it didn't even cause a recession.
seanmcdirmid 11y ago
The China market is pretty limited in reach; not many foreigners and not even many institutional investors; it is rife with insider trading and is pretty volatile. It is more like Macau than wall street. Still, dysfunctionalities in the Chinese economy that they were trying to hide with a stock market boom will now come in front and center, which will have some effect on the global economy. Especially in raw materials and energy, but even in some trade. I'm quite worried about it personally.
- talkingtab 11y ago
  And if you look at the growth in Apple iPhone business much of it is coming from China. (Read that yesterday somewhere).
  - seanmcdirmid 11y ago
    Apple could take a hit for sure....they aren't going to sell as many gold watches as they planned.
  - roymurdock 11y ago
    Q3 financials showed iPhone revenue up 60% from the same 9 month period last year, with 80% overall revenue growth in China, 17% in EU, 19% in US. Chinese market is contributing $46bn in revenue compared to $72bn in the US, $40bn in Europe, and $11bn in Japan.
- Bill_Dimm 11y ago
  The China market is pretty limited in reach; not many foreigners and not even many institutional investors How much money do Chinese investors have invested outside of China? If they bought Chinese shares on margin, they may end up selling assets globally to cover.
  - seanmcdirmid 11y ago
    It is really hard to convert RMB, so that is probably not a big problem. The RMB's non-convertibility helps a bit in that regard.
buyx 11y ago
If it results in a contraction of the real Chinese economy then resource exporting countries (Brazil, South Africa and Australia spring to mind) would feel some serious pain. I'm not sure how much of an effect it would have on the US and Europe.
VLM 11y ago
I'll post some quotes from "The Australian Business Review" "Commodities in a meltdown, but coal, uranium offer some hope " "Copper has hit a six-year low" "Nickel took another hit, ending at $US11,255/tonne while lead shed more value to close at $US1716/tonne." "Aluminium continues to weaken. ANZ says demand in Europe has failed to pick up, underlying Chinese demand is weak" Admittedly Australia is just the mining division of China so its hard not to expect them to crash. Still, Australia has been in an impressive housing bubble at least three times over trendline because China only grows and exports to China only grow, well, at least they only and always grow until they don't. That'll have some impact on financials in Australia and then the world. Nickel, for example, used to be pretty stable, almost "boring" in the 90s and before. Then it tripled in the boom, and has collapsed since then but is still about twice over trendline. This is interesting to think about technologically, imagine the price of NiMH batteries has been 3x trendline for the last couple years and "should eventually" drop to about a third of present price. Of course its little consolation that hybrid cars will be cheaper if you're unemployed because the economy crashed, but "someday" hybrid battery packs will only cost a couple hundred bucks. We might all be standing in church soup lines for food, but at least hybrid batteries will be cheap.

mmorris 11y ago

A widespread slowdown in China's economy would have major impacts on the rest of the world, but it's important to remember that the stock market is not the economy (just an imperfect measuring device). The stock markets in China have been very bubbly lately. My (admittedly limited) understanding is that most economists are still expecting significant growth in China this year, though not as strong as previous years. Also, the recent financial crisis in the US was partially/mostly driven by a debt crisis (housing/mortgage issues), which historically has had far larger and longer-term impacts than a stock market crash/correction.

bhouston 11y ago
The US's whole financial system is tied into its stock market and the financial sector around it (because of leverage and derivatives and every company being public) -- I understand this may not be the case with China? Or am I wrong on this front.
- mmorris 11y ago
  I believe you're correct that the stock markets in China are less directly tied to the economy than than the stock markets in the US. But, even in the US, I think stock markets are like a balloon tied to the wrist of a toddler on a windy day. They may very generally track where some part of the economy is, but there's too much interference and interpretation to get a precise picture. Even worse, the length of the string is unclear.
- rhino369 11y ago
  Even in the United States a pretty major crash can have pretty limited economic impact. The 1987 crash was the largest in US history. In one day, the Dow Jones dropped 22%. Yet, it didn't even cause a recession.

seanmcdirmid 11y ago

The China market is pretty limited in reach; not many foreigners and not even many institutional investors; it is rife with insider trading and is pretty volatile. It is more like Macau than wall street. Still, dysfunctionalities in the Chinese economy that they were trying to hide with a stock market boom will now come in front and center, which will have some effect on the global economy. Especially in raw materials and energy, but even in some trade. I'm quite worried about it personally.

talkingtab 11y ago
And if you look at the growth in Apple iPhone business much of it is coming from China. (Read that yesterday somewhere).
- seanmcdirmid 11y ago
  Apple could take a hit for sure....they aren't going to sell as many gold watches as they planned.
- roymurdock 11y ago
  Q3 financials showed iPhone revenue up 60% from the same 9 month period last year, with 80% overall revenue growth in China, 17% in EU, 19% in US. Chinese market is contributing $46bn in revenue compared to $72bn in the US, $40bn in Europe, and $11bn in Japan.
Bill_Dimm 11y ago
The China market is pretty limited in reach; not many foreigners and not even many institutional investors How much money do Chinese investors have invested outside of China? If they bought Chinese shares on margin, they may end up selling assets globally to cover.
- seanmcdirmid 11y ago
  It is really hard to convert RMB, so that is probably not a big problem. The RMB's non-convertibility helps a bit in that regard.

buyx 11y ago

If it results in a contraction of the real Chinese economy then resource exporting countries (Brazil, South Africa and Australia spring to mind) would feel some serious pain. I'm not sure how much of an effect it would have on the US and Europe.

VLM 11y ago

I'll post some quotes from "The Australian Business Review" "Commodities in a meltdown, but coal, uranium offer some hope " "Copper has hit a six-year low" "Nickel took another hit, ending at $US11,255/tonne while lead shed more value to close at $US1716/tonne." "Aluminium continues to weaken. ANZ says demand in Europe has failed to pick up, underlying Chinese demand is weak" Admittedly Australia is just the mining division of China so its hard not to expect them to crash. Still, Australia has been in an impressive housing bubble at least three times over trendline because China only grows and exports to China only grow, well, at least they only and always grow until they don't. That'll have some impact on financials in Australia and then the world. Nickel, for example, used to be pretty stable, almost "boring" in the 90s and before. Then it tripled in the boom, and has collapsed since then but is still about twice over trendline. This is interesting to think about technologically, imagine the price of NiMH batteries has been 3x trendline for the last couple years and "should eventually" drop to about a third of present price. Of course its little consolation that hybrid cars will be cheaper if you're unemployed because the economy crashed, but "someday" hybrid battery packs will only cost a couple hundred bucks. We might all be standing in church soup lines for food, but at least hybrid batteries will be cheap.