China to Cap Global Rates

The Chinese stock market has lost more than 20% of its value over the past three weeks. The correction would have been deeper, if it weren't for the draconian and unprecedented emergency measures introduced by Beijing (eg, suspending the trading of 50% of the stocks). Notwithstanding the bounce over the past three trading days, history tells us that further decline is probable following a period of consolidation.

There are good reasons to think that the correction of the Chinese equities may have significant negative consequences on the Chinese economy:

• It could sap the public's confidence in the Chinese government's ability to manage the economy.
  
• It may make Beijing more hesitant to resort again to monetary easing to boost asset prices. Iin spite of easier liquidity conditions, credit growth has continued to slow.
  
• The transfer of wealth from the people on the street to the wealthy who cashed out when the market was still going up is likely to hurt consumption. It is important to take note of the fact that in June, before the equity correction began, passenger vehicle sales fell for the first time since 2012. 

It seems reasonable to think that a further moderation of Chinese growth will have global repercussions. On a Purchasing Power Parity basis, China is now the largest economy in the world, accounting for 16% of global GDP. More importantly, the IMF estimates that China accounted for one third of global GDP growth over the past three years. A sharp Chinese slowdown in H2 would easily send world GDP growth to the lowest level since the recovery began.

That said, the impact of a Chinese slowdown on the rest of the world will be uneven. Countries like Korea and Australia whose exports to China account for a large share of their GDP will be especially vulnerable . Even Japan and Germany that have significant exposures to China will not be able to escape the implications of a sustained Chinese slowdown.

Source : FX-Primus

#FX

#Forex

#SaleForex

#China

#CapGlobalRates

#ChineseStockMarket

#ChineseGovernment