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China’s Stock Market has Lost $1 Trillion in Value

China Stock Market
Credit: Reuters

China’s stock market is reportedly facing a crisis as it lost $1 trillion in market capitalization in just 13 trading days. The market has lost about 10% of its value since January 17.

The beginning of 2024 has marked a challenging period for China, the world’s second-largest economy. By extension, this is raising concerns about a potential global slowdown and financial crisis.

The Shanghai Composite and Shenzhen Component indices experienced significant drops, contributing to an 8% and 15% loss, respectively, since the beginning of the year.

“The Shanghai Composite index fell 6.2%, its biggest weekly loss since October 2018, while the Shenzhen Component index shed 8.1%, its largest drop in three years. The indexes have lost more than 8% and 15% respectively since the start of the year”, CNN reports.

Multiple factors, including the coronavirus outbreak, unresolved trade tensions with the US, soaring debt levels, and a structural economic slowdown, converge to create a perfect storm.

Covid Hurdle

The coronavirus outbreak, originating in Wuhan, China, has resulted in over 20,000 infections and 400 deaths as of February 4. This has led to disruptions in travel, trade, and business activities, both in China and globally, due to imposed lockdowns and quarantines. The substantial and lasting impact on China’s economy, which is approximately 16% of global GDP, is anticipated.

Debt Situation

China has a significant debt issue with a debt-to-GDP ratio that exceeds 300%- this ranks among the world’s highest. A substantial portion of this debt was held by state-owned enterprises (SOEs), local governments, and less-regulated shadow banks. This situation posed a threat to China’s financial stability and growth.

As China’s stock market woes persist, the spillover effects extend to global markets.

The US stocks have witnessed declines, and the MSCI All Country World Index, which tracks stocks across 49 countries, has fallen by about 4% since January 17. Analysts debate the potential for a broader financial crisis or recession.

 

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