These Are The Top 5 Questions About China’s Economy
And the answers
Chinese stocks plunged on Monday, marking their worst day since 2007, erasing this year’s gains and sending Asian investors into a scramble to leave the market. The country’s main index, Shanghai Composite, dropped a whopping 8.5 percent, propelling worldwide lament.
As the crisis unfolds, these are the top five questions being Googled from Hong Kong about China’s economy—and their answers.
1. “How did the Chinese government rescue stock?”
After a stock market slide earlier this year starting in June, China unrolled a series of emergency moves aimed at offering relief. They involved brokerage contributions, a suspension of some companies’ IPO plans and the establishment of 25 new equity funds that would hold stocks for at least a year, lawyer and author Gordon G. Chang wrote for Forbes.
At the heart of the plan, announced in early July, was a stabilization fund in which 21 brokerages would contribute the equivalent of $19.3 billion, Chang wrote. China’s central bank was expected to also make other funds available while it appeared that the country’s sovereign wealth fund would provide money for stock purchases, he said.
2. “How bad could China’s economy get?”
No one knows—an uncertainty Quartz described as “really spooky.” Tim Condon, an economist at ING Group in Singapore, told Reuters last week that “uncertainty about China growth is now the main swing factor in markets.”
3. “When is an economy officially considered to be in recession?”
A recession is a “significant decline in activity across the economy, lasting longer than a few months,” according to Investopedia. Technically, that means two quarters of negative economic growth in a row, measured by GDP, according to the online resource for market analysis and information about investing.
So is China in a recession? No. That hasn’t actually happened yet there, even though the macro economy is very weak. “This is the result of both weak internal demand and weak export markets. And the shift underway from factory work to the service sector,” Beijing-based reporter Scott Cendrowski told Vocativ Monday.
4. “Why did China revalue its currency?”
That revaluation was actually a devaluation. Two weeks ago Tuesday, China’s central bank devalued the country’s renminbi, or yuan, by about two percent against the U.S. dollar. The move fueled concerns of a currency war that would give China’s exporters a boost by making products cheaper in the global market. But the devaluation appeared to have been aimed at better controlling its rise alongside the dollar, which has been surging in valuation.
The yuan maintains a close relationship with the dollar and trades two percent in each direction from a midpoint selected by China, according to Forbes. When the U.S. dollar rises rapidly against world currencies, like it has in the past year to pull almost even with the euro, the yuan also rises against China’s trading partners’ currencies. To keep this rise in valuation gradual, it had to devalue a little, said Jonathan Anderson of Emerging Advisors Group.
Google’s fifth most popular question appears the be fourth question—above—reworded, so here’s a question we think needs explaining instead:
5. “Why is China’s stock market drop causing the U.S. stock market to fall?”
It’s not just the Chinese stock market that’s falling—China’s economy is falling, too. “People are worried that it may turn into a recession that would hurt global growth,” Cendrowski told Vocativ. “China’s having a large effect on U.S. markets because its role as the number two economy in the world and the demand in China for many things including commodities.”