Greece distracting from the bull in the China shop


The person or organization – or in this case a nation – that screams the loudest seems to be noticed the most. Thus it is Greece that is hogging the attention of the media on the stage of global economics at the moment. But is the really big problem in Greece?

No. It is the bull in China shop. The bull that has caused a 30% plunge in the Chinese stock market. We are talking about the bull that has caused the Chinese Government to take unusually desperate measures to stop what some fear could be a Chinese stock market crash. We are talking about the bull that has caused this New Zealander who is normally wary of Chinese economic motives to openly express the importance of stabilizing the market before something worse happens. It is true that Greece is a concern, especially since it may bankrupt itself in as little as five days, now that the emergency summit has broken up in acrimony. But Greece is hardly a major player in the world economy and certainly not the New Zealand economy, where the value of its trade is 74th out of all nations. China on the other hand, is a superpower with global economic reach.

The Chinese stock market in the last financial year grew nearly 100% and a self correction was always going to be inevitable. However the size of the correction, and the fact that as of the weekend it showed no signs of tapering off has alarmed officials. To cool down the correction:

  • Brokerages and fund officials have announced the intention to buy back large amounts of stock
  • The buyback would be assisted by the state backed margin finance company
  • The state backed margin finance company would in turn be supported by credit direct from the central bank
  • Dozens of firms have iced their IPO plans and no new ones will happen in the immediate future

China is one of New Zealand’s biggest markets. The volume of trade between China and New Zealand made it our third largest partner in 2014. Due to the depth of exposure to China’s economic performance, any major crisis in their economy, be it on the stock market or because of some other cause is going to be noticed.

There may be such a thing as over exposure to a particular market. I would not know because I am not an economist, but when the economy in question is the second largest in the world and it is your third largest trading partner, I suspect the answer is yes.

 

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