Daniel Halliday
Apr 19 · Last update 2 mo. ago.

What caused the 2015-2016 Chinese stock market crash?

2015 and 2016 were turbulent years for the Shanghai Stock Exchange (SSE), dropping 30% in value from mid-June to July 2015. On the 24th August of the same year the Shanghai index fell a further 8% in what came to be known as “Black Monday” and continued declining into 2016 prompting a global stock market sell-off and a halt to SSE trading in January 2016. What were the causes of this melt-down and what significance does it have in regard to the subsequent US/China trade war, the recent reduced growth forecast and the IMF’s increase of this forecast this month? bloomberg.com/quote/SHCOMP:IND
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Sign of bigger global disaster
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China is becoming a global economic weak link
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A bubble that needed to burst
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Sign of bigger global disaster

China’s 2008 stimulus package of $586 trillion is widely understood as being one of the biggest contributing factors to stabilising the global economy during the Great Recession of the late 2000s. Internationally many government’s had responded to the previous recession by propping up or bailing out the banking system, and not reforming the many scandalous transactions that had become common place, which has led many economists to warn that this may have just allowed such economic bubbles to inflate and worsen over time. Meanwhile similar mismanagement caused the 2015/6 stock market turbulence in China, which may leave some tempted to ask, with the recent slowing of the Germany and Chinese economies, the US and UK stock markets taking large downturns, and the economies of Britain, Japan, Brazil, Hong Kong, Singapore and Mexico all facing a possible recession also, could this be a sign of something worse to come?

But regardless of the Chinese stock market bubble of 2016 it may not be China that are fuelling the chances of a similar recession happening directly but rather the tariffs being imposed on them. Trump’s trade war is thought to be harming innovation in an effort to secure America’s bid to remain dominant into a global transition into 5G technologies, or possibly on a wider scale to also secure the US' global currency hegemony. As China is still one of the main drivers of the global economy hurting their economy may prove a disastrous move worldwide and trigger, along with a failure to reform the global banking system, an even larger financial disaster than the Great Recession. The 2015-2016 Chinese Market Crash may have been a sign that a foundation of bad lending practices is continuing to be the bedrock on which the global economy is built, a sign of global decline that China is just one piece of.

medium.com/utopiapress/a-global-recession-in-2020-is-coming-603f7c03b574 vox.com/2018/9/18/17868074/financial-crisis-dodd-frank-lehman-brothers-recession theguardian.com/business/live/2019/aug/15/stock-markets-recession-us-china-germany-wall-street-ftse-asx-nikkei-rates-federal-reserve- vox.com/2019/8/15/20806775/usa-recession-trade-war-china-uk-brazil-germany scmp.com/week-asia/economics/article/2181593/look-us-not-china-2019-financial-crisis-heres-why

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Daniel Halliday
Aug 21
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DH edited this paragraph
China’s 2008 stimulus package of $586 trillion is widely understood as being one of the biggest contributing factors to stabilising the global economy during the Great Recession of the late 2000s. Internationally many government’s had responded to the previous recession by propping up or bailing out the banking system, and not reforming the many scandalous transactions that had become common place, which has led many economists to warn that this may have just allowed such economic bubbles to inflate and worsen over time. Meanwhile similar mismanagement caused the 2015/6 stock market turbulence in China, which may leave some tempted to ask, with the recent slowing of the Germany and Chinese economies, the US and UK stock markets taking large downturns, and the economies of Britain, Japan, Brazil, Hong Kong, Singapore and Mexico all facing a possible recession also, could this be a sign of something worse to come?

China is becoming a global economic weak link

From before the 2015-16 stock market crash Chinese regulator's interventions have been troubling, allowing widespread margin trading with borrowed money to cause the bubble in the first place. China, wary of further downturns or social unrest, then encouraged state owned enterprises to purchase more stocks to prop up the market rather than allow a controlled price correction. This is only made more worrying by big ongoing issues of economic international relations surrounding Chinese companies stealing intellectual property internationally, China’s engaging in risky unrealistic investments internationally and the China-US trade war. Despite the IMF trying to assure and be positive about it, this economic environment could represent an unstable or unsustainable future for the country.

There is further evidence of unsustainable practices being continually rolled out domestically in China also, with their repeated building of mega cities from scratch, many of which are just becoming ghost towns as they fail to be populated by China’s huge but rapidly ageing population. Massive questionable investments such as this pose an even larger demand on China’s groaning power infrastructure which is still mostly coal fired. This increasingly worrying picture is causing the US to take on an aggressive defensive position as the Chinese picture looks more unstable, to minimise economic damage posed to the world economy by China. This may have negative implications in the short term, and is thought to be behind the current negative growth in Germany and ever slowing growth rate in China, some have even argued that China made be on the verge of causing the next global economic recession.

theamericanconservative.com/articles/the-unreal-scope-of-chinas-intellectual-property-theft economicshelp.org/essays/problems-chinese-economic-growth youtube.com/watch?v=MHijDY9SSsI dgriffith401.wordpress.com/2011/07/07/will-chinese-overbuilding-lead-to-global-recession marketwatch.com/story/let-chinas-bubble-burst-2015-07-29

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Daniel Halliday
Aug 21
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DH edited this paragraph
There is further evidence of unsustainable practices being continually rolled out domestically in China also, with their repeated building of mega cities from scratch, many of which are just becoming ghost towns as they fail to be populated by China’s huge but rapidly ageing population. Massive questionable investments such as this pose an even larger demand on China’s groaning power infrastructure which is still mostly coal fired. This increasingly worrying picture is causing the US to take on an aggressive defensive position as the Chinese picture looks more unstable, to minimise economic damage posed to the world economy by China. This may have negative implications in the short term, and is thought to be behind the current negative growth in Germany and ever slowing growth rate in China, some have even argued that China made be on the verge of causing the next global economic recession.

A bubble that needed to burst

A stock market bubble was a major cause of the 2015-2016 financial trouble in China, but one that is largely seen as necessary to burst and normal for a young economy. This bubble was inflated due to changes in trading regulations allowing margin trading, and an encouragement of investors purchasing stock using borrowed money. In addition the Chinese Purchasing Managers’ Index, a measure of national manufacturing activity, fell in 2015 indicating a slowing in Chinese manufacturing prompting a selling frenzy in 2016. However the Chinese economy remains one that is hard to read and divergent from the stock exchange, making financial bubbles more likely but less indicative of real economic disaster. China recent sheepish growth forecasts demonstrates the government's dedication to address these issues, as China transitions toward a more service based economy.

The current trade war on the other hand has been spurred on by a multitude of factors; China’s long term strategy for making the Renminbi a major world reserve currency, China’s turnaround from 25 years of an economic surplus to running a deficit, and China’s transition to a consumption-led economy. Meanwhile these issues are complicated further by various geopolitical standoffs involving the US, China, Turkey/Syria/Russia, India/Pakistan, and Hong Kong especially, putting China in the difficult position of possible military action in one of its special economic zones. US accusations of China manipulating its currency, despite a lack of evidence and a contrary statement by the IMF, have meanwhile added fuel to this growing bonfire of tensions. As China is likely trying to wait out Trump’s presidency some have labelled this as China/US financial game of “chicken”, but while there are many factors that have influenced this trade war, the 2015-6 Chinese stock market turbulence was not one of them.

bbc.com/news/av/business-34036870/what-has-led-to-china-s-stock-market-crash project-syndicate.org/commentary/why-china-is-not-collapsing-by-anatole-kaletsky-2015-10?barrier=accesspaylog theguardian.com/world/2016/jan/01/slowdown-in-chinese-manufacturing-deepens-fears-for-economy annanimuss.wordpress.com/2019/08/20/will-china-trigger-the-next-financial-tsunami abcnews.go.com/Politics/wireStory/imf-contradicts-trump-china-manipulated-currency-64890296

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Daniel Halliday
Aug 21
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DH edited this paragraph
The current trade war on the other hand has been spurred on by a multitude of factors; China’s long term strategy for making the Renminbi a major world reserve currency, China’s turnaround from 25 years of an economic surplus to running a deficit, and China’s transition to a consumption-led economy. Meanwhile these issues are complicated further by various geopolitical standoffs involving the US, China, Turkey/Syria/Russia, India/Pakistan, and Hong Kong especially, putting China in the difficult position of possible military action in one of its special economic zones. US accusations of China manipulating its currency, despite a lack of evidence and a contrary statement by the IMF, have meanwhile added fuel to this growing bonfire of tensions. As China is likely trying to wait out Trump’s presidency some have labelled this as China/US financial game of “chicken”, but while there are many factors that have influenced this trade war, the 2015-6 Chinese stock market turbulence was not one of them.
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