Chinese stocks have plunged even further and are at their 13-month low, exposing the deep-rooted troubles in the Chinese economy as People’s Bank of China continues to push huge sums of money into the system. The Shanghai Composite Index has fallen by a steep 6.4 percent to 2,749.79, says Bloomberg News.
It may not be surprising that the fall in Chinese stocks was a result of the sell-off in the United States on Monday, caused primarily by the fall in the price of oil, the New York Times has said. The global oil prices are an indicator of world’s economic health, and the fall was reflected in the Chinese stocks, as well. However, the reasons for China’s plummeting stock market are more deep rooted than one would imagine. There is a market volatility looming over the country because of its growth concerns. Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai, expressed concern over the current situation of Chinese stock market.
“It’s an issue about confidence and there’s no confidence in the market now.”
Many have called it the end of an exquisite fairy tale as the Chinese economy grows at its slowest pace in last 25 years. Moreover, the country is struggling with a glut of sick factories that manufacture cement, glass, and steel. China is seeking to turn itself into a consumer-driven economy from a manufacturing-driven one, because of which it is closing many of its steel factories. This could cost the Chinese 400,000 jobs. Li Xinchuang, from the China Metallurgical Industry Planning and Research Institute, told Xinhua news agency that “Large-Scale redundancies in the steel sector could threaten social stability.” There is also a deep rooted concern about the debt-financed investment.
It must be said that the plunging Chinese stocks are a result of the stock market bubble that popped on June 12, 2015. The aftershocks of this stock market casualty occurred on July 27 and on August 24 (Black Monday). Although by the end of December, 2015, Chinese stock market had recovered from the fall, it still did not go back to the June, 2015, levels. This year has not been good for Chinese stock markets at all, as trading was halted on January 4 and 7, after there was a sharp fall in the market. This happened within 30 minutes of market opening.
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