Three thousand billion dollars burned in less than a month, money that would fill ten times the coffers of Greece. The Chinese giant turns out to have feet of clay and to be suspended in a bubble, ready to explode at any moment. It is worse than Athens, troika, Germany and the European Central Bank, then. The crisis of the Dragon frightens the world, despite the physiological yesterday hike, the result of policies of urgency put to use by Beijing. The worst situation was lived by Shanghai’s square, the main stock exchange in the country. A monster capable of growing 150% in a year and a of collapsing at the first blast of wind, like a huge castle built on a worm-eaten foundation. It is sufficient to say that the overall lost amount since June 12 of the last year could easily seize what was gained by the markets of Spain and India.
The concern is a must, because China, although its isolationism, remains a global economy, with interests in major Western states (starting from the US) in which it holds significant shares of sovereign debt. The contagion has already spread, making also Hong Kong and Schenzen succumb. Analysts have the task to look for the causes of the collapse of a market which has been growing up till now, but which has lost 30% in the blink of an eye. What is certain is the singularity of the Shanghai Stock Exchange, so different from its Western sisters. It opens at 9:30 and works up to 11.30, then grants the operators a break of an hour and a half. In the afternoon trading takes around two hours: at 3 pm the final gong strikes. In New York, on the contrary, they start at the same time and proceed non-stop up to 4 pm. Milan begins at 9 am and closes with no break between morning and afternoon, at 5.25 pm.
Despite the liberalization carried out in the past two years, the main square of China continues to be based on protectionist rules: strict control on account of the agents and limits on foreign ownership in the country. This has didtanced foreign investors with the result, they say, that the effects of the crisis in the West will be reduced.
This financial chaos reminds many of the dot com bubble of the US, exploded between 1997 and 2000, which brought the new economy back to the Stone Age. Stock prices, between 2014 and 2015, have risen dramatically without this found a response in the growth of the individual companies. As a consequence the results of the financial market have diverged significantly from GDP, ie the so-called real economy. As in the previous American crisis – linked to the rapid rise of companies active on the internet – everything would therefore have been caused by an excess of enthusiasm flowed in ChiNext, the index of all major technology companies in China. The excessive price of the financial instruments would have prompted some investors to sell, generating an irreversible domino effect, in which everyone, including the most confident, have begun to divest.
The authorities have immediately intervened to try to contain the “panic of markets”, prohibiting the listing of new companies, allowing new methods of debt aimed at liquidity, and ultimately suspending trading for many titles. Drastic measures that have scared even more operators and have aggravated the situation.
According to leading experts in international politics, in any case, the financial collapse is the result of a larger China case. The forecasts of the growth of the country, after the boom of some time ago, are bearish. According to Fitch’s GDP this year will fall to 6.8%, in 2016 to 6.5%, and in 2017 to 6. Monstrous percentages for us but still representing the lowest rate recorded by the Dragon over the last 20 years. Everything derives from the new isolationist impulse settled by Xi Jinping since he has arrived at the apex of the CCP. A strategy that has brought new purges within the party, against those who are more open to foreigners. The effect was to slow the production whishing to slow inflation and to lower prices in order to encourage citizens to spend, creating an inner demand in a system, which, so far, has been living mainly in exports. The result? The economic and social implosion. The financial communism seems really to have come to an end.
Translation provided by Maria Rosaria Mastropaolo