In the world of capitalism, the United States is king. But there is a new sheriff in town threatening the old world order. China’s rise was fast, but its downfall, or at least its stock markets’, could bring everyone down. As BBC reported on Monday, “trading on the main stock markets [in China] was halted early after indexes tumbled seven percent.” The rest of the article did not really shine a positive light on the fates of other major stock markets, mentioning their decline in Europe and the United States.
That all the stock markets in the world depend on each other is not a surprise. That’s just how international finance works. However, Joseph Wang, an investment banker in Hong Kong, explains how different the Chinese and American stock markets are on the website Quora. Per Wang, “The value of the Chinese stock market is largely determined by government policy. Most of the companies on the Chinese stock markets are state-owned enterprises, and the government can largely control the value of stocks by buying and selling shares. The U.S. federal government does not invest in stocks, and state and local governments don’t own enough to determine the market level.”
Considering the volatility of the Chinese market, its relationship and impact on all other markets — and especially the US’ — is disconcerting. According to Reuters, “85 percent of trades in China’s stock markets are done by retail investors. Even more worrisome, one survey found that over two-thirds of China’s newest retail investors hadn’t even earned a high school degree.”
Entering the third millennium, China was pinned as the nation of the new century, ready to take over the old Western powers. But since the Chinese stock markets reopened in 1990 after years of communist policies, investopedia.com says that “China’s stock markets have been likened to a crazy casino rather than a tool for economic growth.” If the United States depends on China’s growth as its new market, it need to strongly consider taking precautions with their investments. As usual, the next big crisis will come down the hardest on those who own the least.
The Wall Street Journal illustrates in one of their headlines the complex, vicious cycle of the system. In “Why China’s Market Fell So Much”, journalists Chao Deng, Anjani Trivedi and Mark Magnier write that investors rush to exit a market after signs of a slowing economy and weaker currency. To let China develop its own infrastructures and get its economy back on track is one thing, but abandoning ship and putting the global economy in jeopardy is another.
You can believe that the Chinese government and American banks might once again bail everybody out. But the stronghold that the so-called investors have over the common man’s life in today’s stock market-driven finance, in China or in the United States, indicates otherwise. They will continue serving their own interests and let the rest of us “peasants” suffer from the fluctuations of the stock markets.
