Grin and bear it
The debate over China intensifies as stocks continue to plunge
(Image via Getty Images)
The long-running debate between China bears and bulls is increasingly no longer an academic problem. Following their worst fall since 2007 yesterday, Chinese stocks continued to fall today, with the Shanghai Composite Index closing down 7.6%. Despite fears that the rout in China will have significant knock-on effects on global markets, as of writing the news out of Europe looks more positive. This morning the FTSE 100 was up 1.9%, with the Dax in Frankfurt and the Cac in Paris up 1.3% and 1.4% respectively.
Speaking yesterday, UK Chancellor George Osborne sought to allay fears about the impact of developments in China on Europe, saying that he was “reasonably confident” that Europe would not face “immediate problems”. However, the stock market plunge has provided further ammunition for China bears. Labour’s Deputy Leadership candidate Tom Watson has attacked Jim O’Neill, the Minister for Infrastructure, for suggesting that fears about China were overblown. Watson said O’Neill’s comments called into question his suitability for the role.
Despite this however the fundamentals in China remain strong. The country is in the midst of transitioning from an investment-led export model to an economy based on domestic consumption, a transition that was never likely to go completely smoothly. A slowdown to what the Chinese government has termed the ‘new normal’, GDP growth at around 7% or less, reflects the government’s long-term strategic priorities. While concerns about China’s future are natural, it remains far too early to write the country off.