Chinese Economics (formerly Economic)

[ramllanos]

Why China's stock market plunge?

[iNow]

The bubble seems to be bursting, or at least "not inflating" as quickly as before. Most knowledgeable on this topic (like Deutsche Bank) suggest that this looks quite a lot like the Nasdaq / dot-com crash of 2000.

 

http://www.economist.com/blogs/freeexchange/2015/07/chinas-stockmarket-crash

http://www.businessinsider.com/deutsche-bank-chinas-meltdown-and-2000-nasdaq-crash-2015-7

[ramllanos]

thanks...

[CaptainPanic]

What I understood is that there were a lot of small investors, who put their life savings into the stock market, or even borrowed money to invest on the stock market. First, all this extra money created a bubble.

Once the market went down though, these small investors all got scared (people react differently when they are investing a company's money, or when it is their own retirement). They all pulled their money out, and this caused a more excessive response than you'd normally expect. Together with the fact that it was indeed a bubble meant that the stock market went down a lot, really fast.

[Harold Squared]

Short selling may be a factor as well, selling high and buying low are the important things. The order of these events, not so much.

 

Tulipomania.

[iNow]

Together with the fact that it was indeed a bubble meant that the stock market went down a lot, really fast.

Indeed. A self-reinforcing market panic, as it were. Corrections happen, but are often amplified by more freshman investors.

 

Something very similar happened during the Great Depression and IINM is the context of Roosevelt's "you have nothing to fear but fear itself" comment. It was fear itself that was causing people to act in such a way that the problem was being made worse (by withdrawing their money and making the market crash harder), hence leading to even more fear, even more panic, and even more people withdrawing their money... lather, rinse, repeat.

[Bill Angel]

Many leading Information technology companies are holding considerable cash overseas.

For example:

Microsoft: 93 Billion

Apple: 70 Billion

IBM: 61 Billion

Cysco Systems: 53 Billion

Google: 47 Billion

Hewlett-Packard 43 Billion

And the list goes on.

See: U S Companies are Stashing 2.1 Trillion Overseas to Avoid Taxes

 

One wonders how much of these assets are being entrusted to the integrity and solvency of the Chinese banking system.

A recent news article stated that "China fell back on its major levers to stem the biggest stock market rout since 1996 and a deepening slowdown, cutting interest rates for the fifth time since November and lowering the amount of cash banks must set aside [to cover bad loans]."

See China Falls Back on Rate-Cut Lever to Stem Stock Market Rout

 

I should think that lowering the amount of cash that Chinese banks need to set aside to cover bad loans would make these banks more prone to failure, given China's economic problems. The question is if these banks do fail, will they take with them the assets of American corporations that might be on deposit with them?

Edited August 27, 2015 by Bill Angel

[Endy0816]

They are changing their banking system. More risk a Bank takes, the higher premiums that Bank will have to pay. Only covers up to the equivalent of $80,000 per account. Corporations would likely end up with the short straw should the bank fail.

Edited August 27, 2015 by Endy0816

[fiveworlds]

Many leading Information technology companies are holding considerable cash overseas.

 

Many of them are part owned by people who live oversees. Also it companies serve the world wide internet which involves buying servers overseas to service their clients. Nobody wants facebook or youtube to take 10 minutes to load.

[iNow]

Many leading Information technology companies are holding considerable cash overseas.

Holding cash overseas <> holding cash in China.

 

One wonders how much of these assets are being entrusted to the integrity and solvency of the Chinese banking system.

I don't. Those companies you cite, as a general rule, see China (and India) as being where the largest aggregate demand exists. That's where future growth potential is most fertile. Even with the currently popping bubble/market correction, the Chinese (and Indian) people/populace are buying iPhones and searching via Google through Cisco networks using M$ applications on HP machines anyway.

 

Further, those corporations have financial teams smarter than you seem willing to give them credit for and they don't tend to stash their majority assets primarily in the chinese market system and they avoid doing this for (what I think are) pretty obvious reasons.

 

I should think that lowering the amount of cash that Chinese banks need to set aside to cover bad loans would make these banks more prone to failure, given China's economic problems.

They're unfalteringly backed by the Chinese government who holds massive amounts of foreign sovereign debt. The loans will be fine, IMO. The leaders will not allow default, nor will Chinese debtor countries like the US, IMO.

 

Of course, I could very well be wring, but this particular point is not one that I feel warrants much rational focus or visceral anxiety.

 

The question is if these banks do fail, will they take with them the assets of American corporations that might be on deposit with them?

They aren't likely to fail, and U.S. corporations don't tend to maintain their majority holdings in Chinese markets anyway, so I'd personally say no.

 

A market crash in China will certainly have global ripple effects. Only a fool would deny that. That said, while the Chinese market faces some foundational flaws, I don't personally believe it will tank for the specific reasons you cite and seem to be suggesting.

 

My best guess here is that this is the natural popping of a bubble, much like the dot-com / NASDAQ fall of 2000. I could be wrong, but when it comes to crystal balls, we're all peering through similarly opaque lenses.

 

"It's difficult to make predictions, especially about the future," -Neil's Bohr

Edited August 28, 2015 by iNow

[DevilSolution]

Proxy war. Print more money

Buy more shit. (All said in a rorschach voice)....

 

And aye those Saudis and Iranians who now have major sanctions dropped unlike there ties with Russia. They supply this never ending war with oil money. China are set and the stage awaits.

China plays by the rules (or so it should). There's no bubble only sentiment and demand, this has been caused by more than you may care to believe.

 

And hey I wouldn't rattles someone's cage who's 5 times my size and half as smart. There's an equation in here somewhere.

 

Keep pumping the money out, keep feeding the beast......

Edited August 31, 2015 by DevilSolution

[Endy0816]

China has been pumping money into their Construction Industry for awhile now.

 

Searches for:

 

"China Construction Bubble"

"China Ghost Cities"

 

will give a good overview.

 

Bubbles honestly behave more like waves traveling through an economy. Money moves from one segment to another, to another. Eventually the wave ebbs, perhaps having split among enough segments or reduced in power by accumulated losses.

[Bill Angel]

Interesting article: If the Options Market Is Right, China's Stock Rescue Is Doomed

 

One point that the article is making is that the Chinese government is endeavoring to prop up the stock market in advance of the World War II victory parade on September 3, an event the government will use to demonstrate its rising military and political might. Another point the article makes is that Chinese investors have about 5 trillion yuan ($783 billion) of borrowed money riding on stocks, and many of them are looking for a chance to exit, according to Bank of America Corp.

 

So any rally in the Chinese stock market, brought about by government buying, could simply be an opportunity for investors who used borrowed money to buy their shares to unload their holdings, quite likely at a significant loss, if they had bought their shares earlier in the year.