The dramatic events of the summer in 2015 seem to have made a real sensation in the global financial market. The second-biggest economy in the world managed to become a matter of concern for both national entrepreneurs and foreign investors. According to the official data, in the period of the summer’s crash, the Shanghai Composite Index lost over 40% of its total capitalization (Li 63).
The severity of the impacts that the stock market crash in China had over the global economy is still debated. Thus, according to the evaluation of some analysts, the negative outcome of these events might be compared with the financial crisis in 2008-2009 and the Eurozone crash in 2011-2012 (Elliott 11). In the meantime, an alternative opinion suggests that the extent of the tragedy is highly exaggerated.
Hence, Roberto Bendini, in his report for the Policy Department of the European Parliament, lays a particular focus on the fact that the spread of the crisis to the foreign markets is relatively limited. According to the analyst, the crash itself is less critical than the general flaws of the current economic model in China (Bendini 5). Therefore, the question arises whether the size of the impact that the China stock market crash produced on the global economy was as significant as the mass media sources would represent it.
On the face of it, the most evident part that is likely to experience the major harm from the China stock market crash is the global companies that owned the relevant stocks. The potential slowing of the Chinese economy is likely to have hit the EU manufacturing segment. As far as China has already become the largest trade partner of the EU after the US, the major part of the European Member States has increased its exports of goods and services to China. Hence, for instance, Germany has been carrying out almost half of all the EU exports to China throughout the past decades; thereby, it will be more exposed to potential harm from the slow-down of the Chinese economy than other states in the EU.
Thus, according to the specialists’ estimates, the size of the general financial losses that these companies bear makes up a sum of 5 trillion dollars (Bendini 4). The impact of the crash has touched upon different sectors in the global market from the French Rémy Cointreau, which specializes in alcoholic beverages, to the American Yum! Brands, that focus on fast-food services. One might, consequently, assume that the summer’s events have put a series of business relations under a significant threat.
The instability of the Chinese market is apt to make the Western partners act more carefully while signing new contracts and agreeing on new projects. As long as the experts provide a rather pessimistic prognosis for the nearest future, the collaboration between the principal stakeholders seems to become more and more fragile (“Special Briefing: China’s Stock Market Crash” par. 14).
In the meantime, it seems that the principal parts which suffer from the recent events are represented by the countries from the neighboring Middle East region. Hence, China’s considerable decline in its economic performance is a matter of concern for an entire series of developing countries that have made a lot of effort in order to adapt their economic patterns so that the latter meet their neighbor’s growing demand for oil and raw materials.
In the framework of the summer’s events, many of these countries’ exports to China have decreased, resulting in significant gaps in the local budgets. According to the official statistics, Kazakhstan’s export to China has decreased to 39.5%, South African and Uzbekistan’s – 32.3%, and the export of Rwanda has fallen in 16.8% (Bendini 5).
It is, likewise, critical to note that the measures taken by the Chinese government in response to the market crash have had an equally significant influence on the stakeholders as the events themselves. Thus, for example, the implementation of the “Announcement 18” introduced the restriction on selling the shares of particular companies. As a result, trillions of RMB of the most powerful Chinese investors turned out to be frozen for a period of a minimum of half a year (Bendini 6).
Specialists state that the creation of an unstable investment environment is likely to slow down the economic growth of the Chinese economy for a significant period of time (“Special Briefing: China’s Stock Market Crash” par. 9).
One of the most ambiguous questions in the framework of the relevant events concerns the dependency of the fall of the prices in the oil market on the China stock crash. The fact that the dramatic crisis in the Chinese stock market coincided with the timeline of the critical price fall in the oil sector can hardly be doubted. Therefore, the mass media sources have opened up a large campaign aimed at blaming the Chinese financial failure for the oil issue. Nevertheless, a closer analysis of the relevant question might show that the Chinese stock crash has little to do with the causes of the oil’s price fall.
According to the experts’ opinion, the principal determinant of the pricing policy in the oil market is the demand-offer correlation. In comparison to this factor, the stock rates play an insignificant role in the prices’ determination process. Therefore, the analysts provide an example of the stock crisis in 2008. Even though the index of the correlation between oil and stock prices was 0.8 at that time (with the current index of 0.97), the price fall in the oil sector was much more considerable than under the current circumstances (Li 66).
Moreover, even those analysts that agree on the existence of an essential interconnection between stock and oil markets, state that it is not the Chinese market stock crash that prompted the decrease in the oil prices, but the latter became a certain kind of a determinant of the financial crisis in China (“Special Briefing: China’s Stock Market Crash” par. 10).
The fact that a large part of the stakeholders had to experience a negative impact on the Chinese market stock crash seems to be evident. In the meantime, it is essential to note that some players in the global market are still likely to benefit from the Chinese market crash in their own manner. Whereas the majority of the foreign markets expressed a panic reaction to the summer’s events in 2015, Indian authorities seem to have found a series of benefits in the current state of things. Thus, according to Dr. Raghuram Rajan, the governor of the Reserve Bank of India, the local economy sector is unlikely to experience any harm from the Chinese market stock crash. The governor assumes that their major concern in the current context is to “turn adversity into opportunity” (Merchant par. 4).
The relevant plan might seem to be realizable taking into account the fact that the export growth is not directly connected with the exchange range in India; thereby, the devaluation of the Yuan will not have a significant impact on the economic activity in general. One might assume that the local authorities hope that the decreased costs of global commodities with help to reduce the cost of the Indian finished products.
Finally, one can presume that the most significantly impacted part from the stock crash perspective is the Chinese government. It is vital to understand that the events of the summer in 2015 were not only important from the economic point of view but also had strong political implications. Therefore, the crucial slow-down of the Chinese economy has highly jeopardized the image of reasonability and sustainability that the country has been developing throughout the past decades. The relevant crash has become a reason for the international society to doubt the efficiency of the Chinese economic policy, and the consequences seem to be so far unpredictable.
In conclusion, one might note that regardless of the severity of the outcomes that the Chinese market stock crash, its impact on the global society is a much more complicated question that one might assume. Whereas the interconnection between the crisis of the summer 2015 and the significant financial losses of the foreign stakeholders seem to be evident, the correlation between the prices’ fall in the oil market and the stock prices remains questionable. Nevertheless, it is currently evident that the crash has most considerably affected two parts: the countries in the Middle East region and the local government from the perspective of its image.
Works Cited
Bendini, Roberto 2015, Exceptional measures: The Shanghai stock market crash and the future of the Chinese economy. Web.
Elliott, Larry. “China Stock Market Panic Shows What Happens When Stimulants Wear Off.” The Guardian. 2015. Web.
Li, Anthony. “Tumbled Stock Market, RMB Devaluation and Financial Reform in China.” China Perspectives 4.1 (2015): 63-68. Print.
Merchant, Minhaz. “ India’s Chinese Takeaway: Turning Adversity into Opportunity.” Daily O. 2015. Web.
Special Briefing: China’s Stock Market Crash 2015. Web.