Due to the Greek crisis and the Russian boycott the situation in China has been relegated to the background. Since mid June the exchanges have been red. The Shanghai exchange lost 26 percent value in four weeks, the Shenzen exchange dropped 36 percent. What is going on? Is there a Chinese stock exchange threatening?
First of all the situation at the moment is still completely different from when Lehmann went down. The Shanghai stock exchange ended in red, but after a period had growing figures up to 150 percent. The Wall Street Journal made a clear graphic showing the exchange development. Over the last year millions of Chinese individuals have been lured to the exchanges, who often entered them with loaned money. Now that the stock exchanges are decreasing, more Chinese people are coming and taking their loss instead of putting extra money into investments. It is mainly foreign companies that are selling shares.
The declining stock exchange is encouraging companies to stop shares. Over 1300 companies have stopped trading over the last few days. 28 companies are proposing an IPO. The Central Bank of China is prepared to pump another 8.2 billion dollars into the market, the fourth time since the 25th of June. There are reports that another injection of 5.6 billion dollars will follow. Besides the Chinese government fearing that companies will go bankrupt, the declining exchange can also damage the trust in the economy as a whole.
A clear cause of the decreasing trust doesn't seem to be there. According to the Financieel Dagblad the wave of IPO's, tightened regulations for investing and doubt whether the government can take the correction are all a role. Other media points to the situation last year that was a premonition of a bubble that is about to implode. The exchange reached a record high of 6.5 trillion dollars, but no longer reflects the growth of the economy. The Chinese economic growth is declining, although a growth figure of 7 percent over the first quarter of 2015 is still a good figure.
The declining courses in China are mainly a symptom and not a cause, according to analysts. The Chinese economy is faltering and reformations are needed. The basis of the economy has to be transformed from investments to consumer purchases, which makes the economy more resilient.
