What’s going on with China’s stock market?
Indexes in Shenzhen and Shanghai hit five-year lows last week. Throw in Hong Kong’s exchange, which primarily lists Chinese companies, and since 2021, China’s stock markets have lost about $7 trillion in value.
President Xi Jinping is reportedly considering government interventions, news that sent the markets up a bit Tuesday.
Now, just like here in the United States, in China the stock market is not the economy. But it can tell us something about where the global economy is headed.
The biggest reason China’s stock markets have taken a nosedive? Basically since the country’s prolonged zero-COVID policy ended, “the Chinese economy so far has been sluggish and very much disappointing,” said Zongyuan Zoe Liu, who researches China at the Council on Foreign Relations.
For starters, the real estate market is an absolute mess. Developer Evergrande was just ordered into bankruptcy, and foreign and domestic demand for Chinese manufacturing just isn’t what it used to be. So foreign investors are looking elsewhere.
“The mama-papa small retail investors also, they have also been taking money out,” said Liu.
Both big Western hedge funds and Chinese retirees are increasingly wary of Chinese government crackdowns on leading companies, like e-commerce giant Alibaba.
Nicolas Véron with the Peterson Institute for International Economics said there’s a fundamental question at stake here: “How long-term compatible private sector growth and entrepreneurship is with the Chinese political regime?”
While China’s stock markets are struggling, it’s important not to overstate just how bad it is.
Economist Eswar Prasad at Cornell University said to put it in American economic terms, “It’s not the sort of collapse that we saw here in 2008 or even during the COVID period, but it is a pretty big hit, so something like the tech bust of the early 2000s is probably a better analogy.”
And for American politicians that want to gloat about China’s woes in an election year, Prasad has a warning.
“Ultimately what happens in China may have a rebound effect on the U.S., and the U.S. certainly is not an island in this global economy,” Prasad said.
Many big Chinese companies are listed on American stock exchanges too, and may also be in your 401(k).
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