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What’s up in China?

Here is attempt to collate a bunch of links to know everything about what is happening in the Chinese Stock Market right now

This is a bubble of epic proportions. In 12 months, Chinese stock markets rose enough to create $6.5 trillion of value. It’s hard to picture, but that’s a stunning amount of money. It’s the equivalent of about 70 percent of China’s GDP in 2013, and about 40 percent of the total value of the New York Stock Exchange. It’s enough to pay off Greece’s debt 20 times over, circle the Earth250 times with $100 bills, or build 43 International Space Stations.

The stock market weakness, should it spread to the Chinese economy over the long term, could prompt Beijing to reassess its overseas loans and investments. Many countries, industries and companies have come to depend on Chinese money to fund their own growth. But Chinese outbound investment could still increase if companies and individuals seek safety overseas.

There are a few other interesting, potential casualties of the latest market drop. Some analysts say that the Chinese government’s repeated pledges to boost the market and subsequent failures to do so could damage its credibility and lead to a crisis of confidence. Even if that doesn’t happen, the government’s latest measures are definitely calling into question its 2013 pledge to let the market play a “decisive” role in governance — the central promise of its economic reform agenda.”

 it is (easy) to frame market data in a way that sounds either scary or benign, depending on your inclination. “The Chinese stock market has dropped 32 percent in a month” is scary. “The Chinese stock market is up 70 percent over the last year” sounds great. Both are true

Those market dynamics can create a chain reaction of selling. China’s major exchanges prevent a stock from falling more than 10 percent on any given day. When that happens, analysts say, many investors opt for selling other shares, broadening the sell-off. Then when the market opens the next day, they continue selling down the stock that was previously halted, effectively prolonging the turmoil.

But the boy was not of the timid kind. “Oh yeah,” he yelled back at Kennedy, “well, I got a tip for you too: buy Hindenburg!” Intrigued, Kennedy turned around and walked back. “What did you say?” – “Buy Hindenburg, they are a fine company,” said the boy. “How do you know that?” –- “A guy before you said he was gonna buy a bunch of their stocks, that’s how.” – “I see,” said Kennedy. “That’s a fine tip. I suppose, I was a little harsh on you earlier,” he said, pulling off a glove and reaching in his side pocket for some change. “Here, you’ve earned it.”

Little did the boy know that Kennedy, a cunning investor, thought to himself: “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.

Update:

But that calculus would change if China’s economy crashes along with its markets. Now it’s important to remember that “crash” is a relative term for China. Its economy is supposed to grow around 7 percent this year, so anything less than 5 percent would push unemployment up enough to feel like a recession. This kind of “hard landing” would hit the commodity countries like Russia or Australia that have been feeding China’s insatiable appetite for raw materials, well, the hardest—although the ripple effects would also reach rich countries like the U.S. that actually sell $100 billion of goods to China each year. That really isn’t all that much in the context of our $16 trillion economy, but if you added up how much other countries being hurt would hurt us as well, it wouldn’t be nothing.

Update 2:

There are several reasons for this unusual behaviour: firstly, when I teach stock market investment to my Chinese students, I always remind them that the Shanghai stock exchange should be thought of more as a casino, rather than as a proper stock market. In normal stock markets, share prices are – or, at least, should be – linked to the economic performance of the underlying companies. Not so in China, where the popularity of the stock market directly correlated with the fall in casino popularity.

Varun Ramachandra is a policy analyst at Takshashila Institution and tweets@_quale

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