China’s Stock Market Collapse Explained
- Articles, Blog

China’s Stock Market Collapse Explained

China’s 25-year-long evolving experiment
with capitalism has seen its per-person wealth grow by more than 2,000% since 1990. But this
summer, the frankenstein-like, hybrid economy that is China’s system turned on its creator,
forcing the government to take unprecedented action to prevent its collapse. Although the
current system of the world’s most populous country hangs in the balance, it’s nothing
new for modern China, which is used to forging ahead into the great unknown. This is an explanation of how it reached its
current tipping point. China’s economy boomed the fastest in the 2000’s when nationwide
GDP jumped by an average of more than 10 percent per year. As the rulers of the country, the Communist
Party saw its power cemented by this staggering pace. But just as fast as it took off, growth
has slowed. First, with the global recession of 2008 and, after a brief recovery, again
sliding steadily since 2010. In 2015, China’s growth may dip below 7%, which would be a
fantastic rate for a highly developed country like the U.S., but for China, it’s a huge
disappointment, and could spell big trouble for a Communist Party that needs to keep the
country’s economy on the development fast-track. After-all, China’s President Xi Jinping
has promised his people a “Chinese dream,” of increasing wealth, well being, and power. In the last couple years, in an attempt to
stimulate growth, Xi’s government relaxed restrictions on its domestic stock market,
opening it to many of its citizens for the first time. As the working class suddenly
gained the ability to use their savings to try and accumulate wealth much more quickly
than they were used to, the market was flooded with new accounts. There are now more than 90 million stock traders
in China, with nearly half joining in just the last year alone. This, and the elimination
of other regulations, caused an alarming surge in the percentage of Chinese stocks purchased
with borrowed money. And with a mind blowing 67% percent of investors
holding less than a high school education, there simply are not enough qualified analysts
able to correctly judge the strengths and weaknesses of companies listed on the exchange.
This tsunami of new, unchecked market activity caused two extremely dangerous things to happen:
The formation of a massive bubble, which sent the value of Chinese companies to highly inflated
levels. And, In the feverish competition to attract investors,
banks and other fund managers promised astronomical profits that were completely unrealistic.
The Chinese stock market has become a casino, with trades seen as bets, instead of what
they actually are: shares of ownership in a business. But what truly compounded this dangerous situation
was the Chinese government’s decision to use state-run media to cheerlead investment
in the surging market. It’s optimism grew so blind that the Communist Party began cleaning
up its own balance sheets by selling off state-owned, junk assets at drastically overvalued prices
back to its own people, who were ignorant of the actual risks of these investments. This kind of free-for-all, every-man-for-himself
approach caused the market to soar even higher, more than doubling in one year, and becoming
the second-most valuable market in the world. But storm-clouds were on the horizon, visible
to anyone capable of, and willing to, see the big picture. And in late June, that storm
came onshore. In a matter of days, the Shanghai index plunged from a high of 5,100 all the
way down to 3,700. More than $3 trillion was wiped out, and the nation was in shock. The government immediately hit the panic button,
banning company executives and any investor holding more than 5% of a company from selling
any shares; they enacted the nuclear option, suspending trading completely in companies
that together totaled more than 40% of the whole market; and they’ve been pumping hundreds
of billions of dollars back into the market in a desperate attempt to stop the free-fall. When the dust finally settles and the sell-off
is over, investor confidence will be so eroded, that the Chinese market could slide all the
way back to where it was before the boom began. If this happens, overall economic growth in
China would likely stay well below 7% for the foreseeable future. All of this lost credibility may not cause
the Communist Party’s immediate downfall, but the Party will have a significantly more
difficult time now convincing the Chinese people that it knows how to best guide them
to their economic dreamworld. Thanks for watching, like this video if you
enjoyed it and found it educational. For the daily conversation, I’m Bryce Plank. This
video was edited by Brendan Plank.

About Ralph Robinson

Read All Posts By Ralph Robinson

100 thoughts on “China’s Stock Market Collapse Explained

  1. this is extremely well said. one of my relatives in China lost more than 1 million USD from this stupid stock market speculation. and quite a few investors killed themselves after the market free fall. but nonetheless, this is how people learn.

  2. 6Now, February 21st there is talk of growing debt for China…. ? question is How so ? with a one-party-state6 and a Public Central Bank system ?6

  3. Could analysts put some science and maths into their analysis? Instead of just looking at the slowing down of growth, a phase which all countries will go through in their development (what is there to talk about?), why not look at GDP per capita? Isn't it still growing and growing quite well? While focusing on the falling exports (because the US and the Europeans buy less), why don't they also look at the part that is growing quite well at good double digits – the services part (the consumption sector that they say they will grow)? Whether cities are filled or empty, these are infrastructures that will come in useful when population descends upon them, not something that is consumed and then gone. If there is a problem, it is a problem of cash flow. But does China has a cash flow issue? Don't seem to be the case here.

  4. China's stock market is a tiny proportion of the overall economy, but more importantly it is isolated from key industries because the mainland private finance sector is stunted and always has been, and the net effect of a total wipe out of all gains since Jan 2015 is as we have seen is negligible, perhaps a 0.5% GDP effect on growth in the subsequent financial year as the stock market, led by Shanghai stabilizes and resumes its post-2009 stagnation.

    What drives growth, dominates finance, and will continue to do so, is state led investment into industries that provide Chinese workers with jobs, infrastructure to get them to those jobs, and ways to get the resultant consumer goods around the country so that retail and service industries can benefit domestically as more and more mainland consumers move into the middle class due to increasing sophistication and value adding of manufacturing industries and the luxury goods they produce, allowing salaries to grow and international competitiveness to increase. Hence the massive drive into foreign markets to fulfill more basic industry needs now that mainland hubs are moving up the value ladder.

    The stock market is a blip on the radar, as was China's private property market bubble near Shanghai and the Bohai rim, which deflated in a boring fashion without pomp or ceremony. China's economy is incomparable with the Laissez-faire capitalism we see in the west, because 60% of gdp is generated by state led corporations that don't intend to ever turn a profit domestically, and the rest of the economy is under the thumb of state capitalist interventionism. There are a multitude of gears and levers Beijing has at its disposal that an Economy such as Australia, France or the US absolutely does not posses. Entire cities can be leveled if the need arises, millions moved, private markets shut down overnight. These things don't exist in the west. It makes free market economics a moot subject in the context of China at this time.

  5. 這短片內容過時,當時上證指數還有3700點,現時才放上來是否別有用心(為中共維穩)? 實情是現在的情况更仆街,上證指數在過去一週曾低見2655點,前景仍一片"落"倌。 edwin lee

  6. In other words, China's market is just the same as the US markets with the exception that only the wealthy can REALLY trade in the US. Don't think that only the small Chinese investor has lost confidence in the markets, so has the small US investor. THE MARKETS AROUND THE WORLD ARE A RIGGED GAME FOR THE WEALTHY. If you invest, they will take your money, they always do. The only reason why the entire system hasn't collapse yet is they, ( Exchange stabilization fund, and big money people) are artificially floating the markets. There are things and places you can invest your money safely without getting ripped off from wall st. DON'T BE THE FOOL ANYMORE. THE CENTRAL BANKS HAVE TO GO!!

  7. people are people – has nothing to do with "investment" no American really does anything different – when was the last time a "little" investor took advantage of the SEC  1933 and 1934 Acts – reading the prospectus? nobody. Of course all markets are betting parlors!

  8. Thank you for a concise and articulate reading of the facts. It seems the dragon is made of paper, worthless paper at that.

  9. That's some pretty awesome chart cherry picking. I hope you've made a video about government debt in China, because while stock markets are disproportionately seen as a sign of economic health in the west (where most decent sized companies are taking part), it truly is not the case in China. They have 100 problems, but the stock market is more of a case of itchy balls than herpes hahahaha. Good sensationalist reporting and epic voicing of cherry picked charts though anyway.

  10. There is a point china gotta borrow china will become greece china has to pay to workers millions or billions or workers at the same time pay the debt then pay for any damage then pay taxes

  11. Not saying any other country is much better, but GDP data published by a communist party is not going to be even close to true. Lest we forget the massive shadow banks and pyramid scheme construction companies with stockpiles of material that was bought with state run shadow bank loans to inflate consumption figures. Many nations that came out from under the iron curtain had similar systems going on before their respective collapses, but not to this massive scale…

  12. Bruh this narrator can be pretty annoying with the whole "less than 7% growth? Chinese Government downfall coming!!!" Acting like it's a recession or something. How little power/legitimacy do you think the Chinese Government has? It's still growth and it's still remarkably high compared to most countries.

  13. If you think that the "people" can peacfully beat the chinese communist party you are living should come down to earth. You can't just put an end to communism. I mean look at USSR the needed 40 years and Gorbachov to step down after Stalin's death.

  14. bubble bursting just reflects real value. the fact of the matter is that people's wealth have grown, in turn companies have grown as well. after you take away the inflated values the markets will just readjust. there is a huge amount of strength in the Chinese economy that can't be wiped away by the stock market. never mind the fact that the stock market has already adjusted and stabilized economies have survived bubbles like this countless times. and governments do not collapse and people do not revolt due to a recession (which China haven't even experienced yet because the slowing of growth is natural and gradual). people revolt against their governments when they are Hungary and when their life is threatened. so unless there is manipulation, there is no chance for a revolt.

  15. In the first 30 seconds of your video, the pictures that you have shown are Hong Kong, but they are different economy and with different stock market!

  16. Wat.. China can ban people from selling their stock? That's like preventing them to do things w/ their own money!

  17. "the CCP is going to have a difficult time to convince Chinese people that it knows how to guide economic success"…. Then what is the better option? Don't tell me it's Donald.

  18. The issue with china is it is a old fashioned export economy and has no self contained economy to insulate it from the issues of other nations. The old saying goes 'When america sneezes the UK catches a cold and Germany almost dies of influenza.' Today it's 'When america sneezes the EU catches a cold and china almost dies of influenza.'

  19. China deserves to collapse biggest theif ambitious nation in the world it dont deserved to be the next superpower USA,UK,Japan,and Israel will continue to be dominate again for better world.

  20. it'll come back strongly there's still much room to grow for Western China to rise from slums.. it's the world's second largest economy at 7-8% growth compared to 2-0% in US EU and Japan.. it's not a economy collapse sure people lost money but it's not like they'll be massive unemployment, degrading housing prices or homeless on the streets in China anytime soon

  21. Back to basics: The Stock Market does not represent the Economy. It is in essence , a gamblers preserve where people can buy into ownership of business with little returns until you find a sucker willing buy. Consider that it all started with tulips in Holland and if you follow the logic you can develop a healthy respect for what Adam Smith called the Institution founded on Greed. However, the Market is a good measure of expectations and where people will put their money ( credit ) . People will hold their money and this will freeze up capital which will slow up the flow of SUCKERS. That is how the Stock Market works. If you want to be a millionaire you should buy a lotto ticket, it will only cost a dollar…..

  22. China makes wrong figure for world and it is never strong economy. just ask for free press you will know the truth.

  23. so call stupid explained, the currency is getting stronger, US media always create false news and double standard right, damn you.

  24. I can't believe that they suggested that a developing economy, which according to the IMF is already the largest economy in the world, but which may not be growing at a rate larger than 7% in the near future, has questionable government legitimacy. The idea that the largest economy in the world should be able to grow continuously at an annual rate of over 7% is idiotic.

  25. One factor was in America, China's raw materials come from one source, scrap; and therefore is vulnerable to Labor Strikes, especially longshoremen.

  26. Can't agree. Never underestimate the Power of the Party in China. To date I think they handled the crisis quite well, far better than one would expect the EU or even the US to do.
    There are certainly built-in structural flaws in the Chinese model, but these probably won't rear their ugly head before the Demographic Crisis hits in about a decade.
    The competition simply isn't there in the global market(for manufacturing).
    Maybe if the EU had its house in order, or if South America or India could finally get their act together, China would have a harder time.

  27. China is cheating on more then just one front, one is its currency manipulation, to undercut prices in respective markets, the other is stealing IP through their partnership business scheme, only designed to steal ideas, high tech, IP from the west, Trump is gonna bury china, hard times ahead, and Xi will lose face, cause one day Chinese wake up to realize their former pig minding president is not as smart as their manipulated press makes him out to be. –

  28. Xi Pin is just a criminal, he just disposed of his opposition, of some rich guys, stole their money, and had them executed, dont look like mr nice guy to me sorry

  29. emerging market fund is more riskier as it holds 35% of China and so many fake companies in china faking their revenue and profits and majority dont have any workers its dead companies but owners walking away with millions because then lie on their sheet.

  30. Growth figure that is propaganda number is nothing but stock market collapse is real and undeniable.

  31. The title of this video says "China's Stock Market Collapse Explained". When did China's market collapse? How do you explain something that never happened? Clearly this is a wishful thinking of TDC. TDC wished that China's market would collapse. To do that, TDC made up an "explanation". Sorry TDC, your "explanation" failed. China's economy is still expanding although at a slower pace.

  32. The Chinese Government instead of allowing people to just Invest in their market blindly they should have started companies like investment firms and allowed it's people to place the money into those funds. This way the money would have been handled by professionals and the Chinese Governments could raise taxes and make money from those investment firms. So everyone would have won at the end of the day

  33. Red Chinese communist party will collapse it's own, …-cannot wait to see…no human rights
    STOP lying to your own chinese people,
    almost zero, or minus -1, downfall ,

  34. Wishing more than analysis that it will collapsed in yearly basis for as long as China economy is in existence and never feel tire….(readers) yawning….

Leave a Reply

Your email address will not be published. Required fields are marked *