Chinese Stock Market… Falling or Not? by Nate Ward ’16

This past summer, the Chinese stock market had a rough time filled with drop after drop from the end of July to the end of August. On both July 27 and August 24 the stock market dropped by more than 8%, comparable to some of the larger single day losses in the 2008 crisis in the United States. The assumption after reading this statistic is that China will soon be entering a recession, and will likely bring other countries like the U.S. down with them. This however is false, given how different the U.S. markets and those of China really are. According to Scott Cendrowski, a writer for Fortune.com, “[R]eacting the same way to a 5% drop in China and a 5% drop in the Dow is about the same as a foreigner living in the U.S. expecting the same lifestyle from Cleveland and New York.” The reason why this recent downturn in the Chinese stock market isn’t as bad as it seems is because most of their holdings are in state-controlled companies. Additionally, holdings in the Chinese stock market account for less that 5% of household wealth, while this number is nearly 33% in the United States. Another reason why this Chinese crash is not nearly as bad as it seems is because it has yet to show that it actually has a major effect on the world market. On the 27th of July, when the Chinese market had fallen by 8.5%, the S&P 500 barely budged; nothing out of the ordinary considering its usual patterns. On top of this, the Chinese stock market has always been rather volatile, especially compared to its western counterparts. With this said, China’s economy is not in the most stable of positions to say the least. It is however a problem that doesn’t have any correlation with their stock market, which is likely just acting a little more finicky than usual, and shouldn’t have too big of an effect in the U.S.

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