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The Great Fall
China’s Troubles Hit Home

July has been a bad month for authorities in Beijing. At the start of the month, Chinese stock markets began to tank, and despite Beijing’s best efforts to shore up the collapse—by targeting short-sellers, banning certain trades, and offering ample liquidity to traders—markets collapsed again earlier this week. China’s CSI300 index ended the month down 14.7 percent, and the Shanghai Composite Index was off by 13.4 percent. As a whole, markets were still up by more than 60 percent from a year ago, but the bloom was off the rose.

Beijing’s mid-month announcement that growth was still humming along at the predicted 7 percent in the second quarter was met with broad skepticism. Ever since then, we’ve seen a steady stream of data indicating that all is not well: In commodity markets, copper, considered a bellwether for global economic activity, was down 9 percent on the month. Oil continued its grim slide amid no sign of supply being cut back by OPEC despite the weakening global outlook. Emerging market funds have seen $4.5 billion in withdrawals last week alone—$14.5 billion in the past three weeks. The Russian ruble also took a drubbing and appears to be under serious pressure at time of writing.

But perhaps the strongest signs of worry are coming from some of the world’s biggest companies, which announced warnings on profits for the second half of the year, citing weak demand in China. The Financial Times:

Audi and France’s Renault both cited China as they cut their global sales targets on Thursday, with Christian Klingler, sales chief at Audi parent Volkswagen, predicting “a bumpy road” in the country this year. Peugeot slashed its growth forecast for China from 7 per cent to 3 per cent while earlier this week Ford predicted the first full-year sales fall for the Chinese car market since 1990.

US companies have also been affected. “In Asia, the China market has clearly slowed,” said Akhil Johri, chief financial officer at United Technologies, the US industrial group at the company’s earnings call last week. “Real estate investment, new construction starts and floor space sold are all under pressure.” […]

In the consumer goods sector, brewer Anheuser-Busch InBev said on Thursday that volumes fell 6.5 per cent in China as a result of “poor weather across the country and economic headwinds”.

Among industrial goods companies, Schneider Electric, one of the world’s largest electrical equipment makers, reported a 12 per cent fall in first-half profit and cut guidance because of “weak construction and industrial markets” in China. […]

Siemens, the German industrial giant, on Thursday said sales in China fell 8 per cent in the quarter and Chinese new orders slid 2 per cent when adjusted for currency swings.

This could be a bumpy road for all. Western stocks aren’t immune to China’s troubles; major companies have depended for years on Chinese growth to boost revenue and profits. So if China continues to slow, the trading floor of the Shanghai market won’t be the only place where people are feeling pain.

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  • theresanursemom

    I suspect much of what we here from China in regards to their economy is suffused with pride and face saving measures which translates in reality into what we now refer to as Enron accounting.

  • Jacksonian_Libertarian

    People hate change and will do almost anything in order to avoid making any changes. Therefore the fast and flexible investors willing to embrace change, are constantly reviewing their investments to short the losers and buy the winners. China is clearly going to be a loser going forward, and investors that haven’t already shorted China deserve to lose.

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