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7/10/15

Global Economy: China's Casino Moment - by Holger Schmieding

First boom, now bust: The Chinese equity market may soon serve as a standard case of what can go wrong in the financial sphere.

But seen from afar, do we have to worry? Not much, at least not about China. The Chinese equity market does not have much to do with the real economy. It plays no major role in financing Chinese investment.
China’s equity market is also not a leading indicator for the country’s business cycle. It follows its own dynamics driven by liquidity, regulation and the usual panics and manias to which young financial markets are even more prone than established ones.

The 150% surge which the Shanghai Composite Index registered from mid-2014 to its peak on June 12, 2015 did not lead to a major surge in business investment and Chinese GDP growth.

The fact that the market erased roughly half of these gains until yesterday will not herald a major decline in Chinese investment. However, there will be some impact on corners of the private sector — especially on consumption of luxury goods.

Read more: China's Casino Moment - The Globalist

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