Today, stock markets around the world fell in response to disappointing economic news and forecasts coming from emerging markets, especially China, and less-than-expected home sales numbers from the United States. Many of the world's markets have benefited from China's continued growth and the subsequent rise of other developing nations, but as China's growth has slowed and several currencies (especially the Argentine peso) have experienced severe devaluation in these first few weeks of the year, investors have become worried about the value of the money they have in markets outside of highly industrialized nations.
Some researchers and market strategists have attempted to assuage fears by saying that these fluctuations are all part of the normal market and business cycles, but others worry that the fluctuations may be too severe for investors to remain confident in the value of their money, especially given the tenuity of the global economy since the recession. If I were an investor in Chinese markets, I would worry about the slowing growth in the manufacturing sector, especially in light of the precedent that Japan set. Without sufficient investment in other aspects of the economy, China, which has leaned on its manufacturing sector for so long, may struggle to sustain growth if the sector falters.
http://dealbook.nytimes.com/2014/01/24/a-worldwide-market-slump-gains-traction/?_php=true&_type=blogs&hp&_r=0
Some researchers and market strategists have attempted to assuage fears by saying that these fluctuations are all part of the normal market and business cycles, but others worry that the fluctuations may be too severe for investors to remain confident in the value of their money, especially given the tenuity of the global economy since the recession. If I were an investor in Chinese markets, I would worry about the slowing growth in the manufacturing sector, especially in light of the precedent that Japan set. Without sufficient investment in other aspects of the economy, China, which has leaned on its manufacturing sector for so long, may struggle to sustain growth if the sector falters.
http://dealbook.nytimes.com/2014/01/24/a-worldwide-market-slump-gains-traction/?_php=true&_type=blogs&hp&_r=0
5 comments:
Very interesting article. While it is might be concerning that the growth of Chinese economy have been slowing down, the government is looking into moving away from manufacturing, heavy industry and investment in infrastructure. They are attempting to diversify their economy by putting resources into the service industry, especially in he areas of logistics, tourism, healthcare and information technology. This strategical move might stall the growth initially but lead to greater productivity in the end. It will be interesting to see how economic and monetary policy will effect financial markets in the future.
Rather interesting article to say the at least. But as Zhdan pointed out, it seems China is trying to move into the next stage of development which would be concentrating on the service industry. To me it seems like a transition period for China so the the world might be feeling the pinch due to hit resulting from the (ongoing) transition.
Like Nazar said, a lot of manufacturing factories in China are moving to countries like India, Vietnam and Cambodia where the labor cost is cheaper. Standard of living in China has been increasing for last several decades and they require higher wages. So in near future, cheap labor force will not be their strongest weapon. Also, Chinese technology has been advancing rapidly and they no longer only assemble other companies goods and they produce their own "complete goods".
In the Fall we hosted the Economic Outlook Conference and China's supernormal growth was discussed in part. I believe that, as stated in the article, China is attempting to transition their economy and doing so will lead to less astounding rates of growth. While these rates would be a decrease from where they are now, they would be a drop to a normal level of sustainable growth. Supernormal growth is unsustainable.
China has been doing very poorly with their stock market. The housing market is one of the only stable markets that people can invest in. It is illegal to invest in companies outside of the country. Thus people are investing highly in the housing market but the problem is there are huge apartment all built that people have bought but do not live in. There are completely empty high ranked apartments that people are only investing in. This is unfortunate because these investments should be put in the countryside where there is widespread poverty and it could actually benefit communities. Eventually this market bubble will pop and wealthy people will soon be penniless. This has happened in Ireland before, its like a re-occurring path for countries to make.
One of the big problems with China is the corruption. I wonder how the economy would be or how the stock market would be if there was no corruption. I am surprised Turkey called out their largest business group for treason. That shows that they are making ways into become a more developed and honest country with a rising economy. Maybe they will be the next big economic power.
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