China’s Economy & Us
As Americans, it’s normal to be fearful of what’s going on in China right now. After all, aren’t they in a similar predicament to the one that we found ourselves in back in 2008?
From 2011 to 2014, China’s economy had been on a decline. Near the end of 2014, the government decided to take action. Between the media urging people to take out loans, and government-owned banks allowing some of those loans to be very risky, the Chinese economy experienced a period of rapid growth between January and June of this year.
However, what goes up must eventually come down. On June 12, 2015, Chinese equity markets took a large hit, subsequently causing a wave of panic among investors. In an effort to avoid the impending economic crisis, the Chinese Securities Fund purchased massive amounts of stock, and even gave permission to approximately half of stocks to temporarily halt trading.
So, what does this mean for us?
We’ve already begun to feel the effects of Chinese economic troubles. America’s economy is deeply intertwined with China’s, so when a shift takes place in either country, it will affect both.
August proved to be an unfortunate month for our stock markets, and concerns about the trouble in China are at least partially to blame. With September being notorious for having the worst markets of the year, we can only expect things to get worse over the next several weeks before the market regains its speed.
One massive change that will affect markets around the world is the devaluing of the yuan. This move by the People’s Bank of China was likely done in hopes of increasing exported product sales, as this makes their goods cheaper to others in comparison. However, by doing so, China has also shown their hand – their economy is failing, and they’re now taking desperate measures to remedy the issue.
Because China owns the second-largest economy in the world, this move could prompt other national banks to do the same with their respective currencies. This would hurt commodity markets, as it allows China to sell to other nations at artificially low prices, thus assisting Chinese exports at the cost of other nations’.
Although there are still plenty of concerns to be had regarding China’s economic state, the good news is that the U.S. is actually extremely self-sufficient. Even if our trading markets with China take a hit, our consumer spending within America comprises the majority of our GDP, which will keep us afloat.
And besides, some optimists even feel that soon China’s economy will be growing stronger than ever!