Is China’s Economy On The Verge Of Collapse?

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  • Lissette Padilla
    Lissette Padilla

by Jono Simrin

With the 2nd largest economy in the world, China is now encountering bumps along the road. So is China on the verge of an economic collapse?

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After more than a year of robust growth, the Chinese stock market has taken a plunge and prompted government officials to step in. According to The New York Times, Chinese stocks have doubled in the 12-month period ending June 12, with working-class and middle-class families buying cheap shares in smaller companies quite aggressively.

This triggered some speculation from investors that the markets were forming a bubble on the brink of bursting. On June 26, the Shanghai and Shenzhen markets took a seven percent drop. Since then, the markets have been on a slide of sell-offs. On July 14, the Chinese government diverted funds to 21 brokerage firms put $19 billion into a fund to buy shares from larger companies. Initial public offerings for 28 companies were suspended and funds were returned to would-be buyers. The move kept shares for large companies stable, but the value of small and medium sized corporations continued to slide.

While the Chinese markets have little foreign investment, analysts are closely watching to see if the trend will have any larger consequences for the global economy. After all, China is the second-largest economy in the world, the number one importer of commodities.

Learn More:

China’s stock market crash, explained in charts (vox.com)
“China’s stock market has plunged over the past month. Here are eight charts that help you understand what’s going on.”

A crisis of young and old in China’s birth rate (nytimes.com)
“Shanghai is rightfully known as a fast-moving, hypermodern city full of youth and vigor.”

Asia to face ‘significant economic challenges’ in 2015 (dw.com)
“As China’s economic expansion moderates and Japan struggles to come out of its third recession in two years, economists have revised down forecasts for several economies in the region. ”

People’s Republic of China Financial System Stability Assessment (imf.org)
“China has made remarkable progress in its transition toward a more commercially-oriented and financially sound system.”

Shadow banking in China: A primer (brookings.edu)
“The rapid development of China’s shadow banking sector since 2010 has attracted a great amount of commentary both inside and outside the country.”

China’s Total Debt Load Equals 282% of GDP, Raising Economic Risks (wsj.com)
“China’s overall debt load has risen quickly since the global financial crisis.”

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