China – The Next Ill-Wind?
by Sy Harding
May 28, 2010
It’s been one world economically, a global village, for years now.
The competition between major countries is no longer fought on the high seas, or on land with vast armies, but in board rooms and markets. That China is a communist country politically is no longer a concern. The competition is economic, for instance whether China’s semi-capitalistic economy, having already surpassed France and Germany, will soon surpass Japan to become the world’s second largest economy behind the U.S.
The big concern in the U.S. is not which country has the largest navy or nuclear arsenal, but whether China, Japan, and the oil exporting nations, will continue to buy U.S. bonds, and hold U.S. dollars in their central bank reserves, happy to be the largest foreign holders of U.S. debt.
The global village aspect and intertwined economic dependence on each other can be seen in the way global economies enter and exit recessions together, and see their stock markets enter and exit bull and bear markets together.
It should be no surprise then that the economic worries blowing over Europe this year have circled the globe.
Chill winds picking up in China haven’t attracted as much attention yet, but may soon.
China’s economy has been growing at a blistering pace for years, which has not escaped the attention of global investors. China’s stock market gained 600% from its low in 2005 to its high in late 2007. It then plunged 72% in the global bear market of 2007-2009. And it subsequently surged up 107% in the new bull market (while the U.S. market gained ‘only’ 80% to its recent peak).
However, there hasn’t been much recognition that the Chinese stock market topped out again last July, and has now declined 27%, officially in another bear market, even as its economy remains one of the strongest.