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What is causing the Chinese markets selloff and whats next for the global growth
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Loading...The market turmoil and a sharper than expected economic slowdown have put pressure on Chinese leaders, just as Donald Trump does.
A day after Shanghai Composite collapsed to a 4-year low and Trump made new moves to escalate his trade war with Beijing, third-quarter growth data showed that the Chinese economy is expanding at its worst pace than the financial crisis back in 2009. Faced with the growing stock market panic, the heads of Chinese market regulators, the central bank, as well as the leaders of the world of finance, made statements urging investors to calm down.
"China is under extreme pressure on several fronts," said Michael Every, Head of Asia Financial Markets at Robobank. "Logically, all this forces China to make a deal, but I do not think that they have been offered this option."
While the Shanghai Composite opened with declines on Friday, the index surged to positive territory and finished the day with a 2.6% gain.
Chinese markets are still the worst performing in the world since January - losing enough to wipe out the combined market capitalization of Brazil, India and Russia. Losses in China are largely fueled by trade and economic growth concerns, but growth accelerated this month as a result of a wave of forced sales by leveraged investors. About $ 600 billion in Chinese shares are pledged as collateral for loans, leaving their owners vulnerable to margin calls while prices are sinking.
Friday brought new reasons for investors to worry about the economy. Weak industrial output and what the government called the "severe international situation" were key factors for the third quarter slowdown, with GDP growth slowing to 6.5% from 6.7% in the previous three months. Industrial output grew to 5.8% in September from 6.1% in August.
However, there are reasons for optimism. Friday's retail sales surprise with a rise, rising 9.2% in September against 9% forecast. Growth may soon be boosted as the reduction in stimulus measures, including the reduction in reserve ratios between central banks, begins to filter through the economy. Local authorities also collect 1.35 trillion. Yuan in special bonds to invest in infrastructure - a sign that the previous debt reduction was softened.
At the same time, external challenges are increasing. The International Monetary Fund cut its forecast for global growth this month, the first of more than two years, noting that some of the risks of higher tariffs have begun to materialize.
Rising US interest rates, a stronger dollar and falling currencies shake the emerging markets, adding to uncertainty, as Trump is preparing to push higher rates for China's exports in January.
Trump escalates the confrontation with China this week with plans to withdraw the US from a 192-nation treaty that gives Chinese companies discounts on small shipments sent by water to US consumers. The National Association of Producers said the concessions are a subsidy for Chinese forwarders, which costs $ 170 million in 2017 in the US postal service.
Source: Bloomberg Finance L.P.
Original Post: China’s Problems Keep Piling Up With Trump, Economy, and Markets
Charts: Used with permission from Bloomberg Finance L.P.
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