On Monday the index of the Shanghai Stock Exchange SSE Composite recorded 8.5% market drop, which happens to be the largest daily decline since 2007. The panic spread to other stock exchanges – major European stock exchanges lost a few percent each, and WIG20 lost even 7.5 pct at the end of the day. Why the panic?
This time, it was the China who spooked the investors. Powerful slump in Shanghai spooked the investors around the world who have already had their concerns about the state of the Chinese economy – a drive behind the growth in the world still.
Is it just a correction or the beginning of a crash?
‘It could be both – until the peak in June, indices of the Shanghai Stock Exchange increased by 150 pct in a year, after all. The problems for the real economy, however, may lurk in the background. ‘Stock quotes often anticipate what will be happening in the real economy’, reminds us Maciej Bitner, Chief Economist at WISE, in an interview with wnp.pl. In his opinion, concerns about the Chinese economy may be justified.
‘Contrary to general admiration of China, I have predicted the possibility of a speculative bubble in the Chinese economy for several years. Granted, we should appreciate what has been achieved so far – lifting 500 million people out of poverty, rapid economic growth – yet for some time now, this economic model based on big public investments is no longer working’, claims Maciej Bitner. ‘At a certain stage of development, institutional changes are needed’, said Bitner, while adding that China was reluctant to introduce such changes – they did not carry out a privatization, large state-dependent companies still prevail in the economy and the development was funded with loans from state-owned banks. ‘Meanwhile one can doubt if China, regardless of its rapid development, is already wealthy enough to meet such debts’, says the economist.
