The Financial Crisis Of The Chinese Stock Markets

For the last twenty eight years, China has been quickly growing into one of the largest economies in the world. China has accomplished this feat, in part, by radically changing their policies on trade and free market interactions with other countries. During this process, China has bought approximately one hundred trillion dollars of United States debt in the form of Treasury bills, notes, bonds, and Inflation Protected Securities (Amadeo). This debt has given China leverage against the United States which has enabled China to keep the value of the United States dollar high, while keeping the value of the Chinese yuan low. As the inflation of the dollar continues to negatively affect the

These effective strategies helped Hong Kong overcome the financial crisis. All these facts fully demonstrated that China is a responsible big country. After the Asia financial crisis, the importance of China's economy has been brought into focus; China's neighboring countries have begun to recognize the influence of the Renminbi.

In 2008, the Global Financial Crisis broke out; both the American economy and the economy in the West suffered a hard blow. However, a big economy system in the East emerged unexpectedly. China is now able to challenge the America’s decades-long dominant position in economic area. Started during the middle of 1990s, China’s manufacturing industry developed rapidly that billions of exports were floating out, and China was given the title of “the world’s factory”(BBC). By the end of 2010, China with a GDP of $5.8 trillion, surpassed Japan’s GDP of $5.48 trillion, became the world’s second largest economy system (BBC). China also exceeded Japan became America’s largest foreign securities holder. Since then, China has been seen as the US’s

In the last three months of 2008, under the general decline in the global stock market, numerous Asian stock markets were in free fall. The key stock index such as Nikkei 225 in Japan, Hangseng in Hongkong and Sensex in India suffered significant drops. (Rose & Spiegel, 2009)

“Stock Market Crash.” PBS, Public Broadcasting Service, www.pbs.org/fmc/timeline/estockmktcrash.htm. Accessed 13 Mar. 2017. To fully comprehend the logistics of the Great Stock Market Crash of 1929, one must recognize the basics of the stock market. “Capital is the tools needed to produce things of value out of raw materials.” At the time, capital was mainly represented as stock, and corporations owned the capital. Thus, whoever owns a share of the stocks owns a part of the corporation. In the 1920s, a boom in stock value occurred, so investors purchased a multitude of stocks. Yet, the mirage faded in 1929, and stocks swiftly crashed. As a result, banks, which had invested deposits in the market, lost depositors’ money;the banks attempted to

When Deng Xiaoping took control of China, he recognized that the economy was collapsing, and that his people were worried about class, especially how quickly the upper-class was growing, so he came up with a plan. He was going to open up the country to foreign investors, “But Deng himself undermined the process with his famous call to let ‘some get rich first’ . In practice this meant giving priority to the coast...Private enterprise

Communist countries like China limit the rights of their people. Without these guaranteed rights, average Chinese citizens do not have the ability to gain and create wealth, like those in western capitalist societies. As McGregor described in The Party only those who hold government or influential roles in the society have the capability to create wealth. The society gives the citizens what they need and shelter then from the excess supply that is available. With this in mind, it is relatively impossible for communist Chinese people to create the wealth described in The Big Short. The Big Short by Michael Lewis describes the story of how economically savvy investors would use financial markets to bet on the mortgage collapse. As a result, this leads to heavy government influence in the free markets. These investors would use financial instruments to create things such as leverage so they would make 100 to 1000 for each of their one dollars invested. This created the 2008 banking crisis. This crisis allowed for big name company and property owners to take advantage of different types of

This document is authorized for use only by Yen Ting Chen in FInancial Markets and Institutions taught by Nawal Ahmed Boston University from September 2014 to December 2014.

As a functionalist (pg. 411), I believe in societal dysfunctions. A dysfunction of the economy is recession and depression. There is no way to prevent these dysfunctions from happening. Stock market crashes and slowdowns happen all the time in every society across the world and often occur in cycles. Even though China has a socialist government that regulates the economy, even it obviously couldn’t prevent a nation-wide recession.

When the chinese stock market crashed the Us stock market sank 1000 points in one day. This was the biggest drop ever and all as a result of the crash of the shanghai exchange. China had a solution to fix some of these problems. Though they are a communist government they interfered with the exchange like they are a capitalist government to try to fix the problem themselves. A communist government is “A system of government in which the state plans and controls the economy and a single, often authoritarian party holds power, claiming to make progress toward a higher social order in which all goods are equally shared by the people.”and a capitalist government is “closely associated with economic growth, as production and price are determined by the market rather than by governments. Private property rights provide individuals with the freedom to produce goods and services they can sell in the market.”

The article I chose describes how the Chinese economy copes with its worst economic slow down in 25 years. The article said that the recent figure shows that growth has slowed sharply and deflation set in. The property market has dropped drastically and factory production is at its weakest point science the 2008 global crisis. In the first three months of 2015, GDP grew at "only" 7% year-on-year, which is pretty small compared to the “usual” 9% growth. Growth for 2015 will probably be the weakest in 25 years. Some pessimists said that China’s economy is about to crash after three decades of rapid development. But the article argues that china’s economy is stronger than they thought and is going through a quiet financial revolution.

Since the financial tsunami and the bankruptcy of Lehman’s Brother in September 2008, the world’s economy took a deep plunge and the Chinese economy is no exception. In the wake of the global financial crisis, The Economist (2008) reported that China’s real GDP growth slowed to 9 percent in the third quarter of 2008 and export growth slowed to 21.1%. It was, in fact, well below analyst expectations and recent

In countries with well developed financial markets like the US, firms use the equity and debt markets to raise capital for their operations, instead of relying on just financial intermediaries such as banks. China’s financial markets, however, are relatively undeveloped, with equities and debt instruments combined accounting for <3% of total assets, as compared to 32% in the US (Xiong 2017). The stock market in China is heavily speculative with volatile prices, while the bond market is still in development. In the absence of well developed financial markets in China, the financial sector sector is dominated by financial intermediaries, mainly banks. Bank deposits are 85% of all financial assets in China, and these savings are invested

In February this year, China’s top securities regulator Xiao Gang was dismissed and criticized for financial corruption because under his administration, a speculative stock bubble has inflated in the country’s stock market. Share prices more than doubled in one year. Despite of the abnormal inflation, since last June, there has been “a steep plunge in stocks” as well as “erosion in the value of China’s currency”. Xiao Gang conceded that recent troubles reflected that “imperfect trading system, flawed market mechanisms and inappropriate supervision systems” are three detriments to the Chinese stock market as well as to other financial markets like real estate. (New York Times, 2016)

In the 1990’s, there was around 100,000 state owned enterprises (SOE) in China and over half of them were losing money. Since 1992, most of the SOEs were given freedom to reform and extensive new investment was required for the action. IPO is one of the effective channels to raise capital in the market. Beside the Shanghai Stock Exchange and the Shenzhen Stock Exchange, SOE also sought listing out of the PRC and Hong Kong became their first destination.