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China stock market slide: Impact on electronics industry

Posted: 07 Aug 2015 ?? ?Print Version ?Bookmark and Share

Keywords:Apple? electronics industry? stock market?

The Chinese stock market has been making a lot of headlines as of late. After a huge run up in the last year of 125 per cent, the market has plunged, having lost half of that gain in just a few days. Analogies with the crash of '29 rebound around the Internet, but the reality is far different and far more complex.

China is NOT a capitalist country. Most stock floats comprise only a small portion of a corporation's issued stock. Moreover, stock ownership by state entities, either directly or through proxies, is a major factor. Then add to that the Chinese government's willingness to micro-control the markets if necessary and it becomes clear that a loss of $3 trillion in "wealth" may not destroy the economy.

In fact, the stock exchanges are in the main licensed gaming houses, with this bubble occurring as small unsophisticated investors jumped into sentiment buying on a rising market and leveraged margin heavily. External investors own so little of China's stock (1.5 per cent) that their exposure is low. So why get excited?

First, this mess (and it is a mess) is a slap in the face for the top level of government. Last year, they promised a more open market, and instead have introduced extensive and even draconian controls to stop the collapse.

Second, there will be a crisis of confidence that will ripple into internal and international trade. Lending policy will be under scrutiny to limit margin trading and attempts to hide trading losses.

More importantly, China has managed to get into a perfect storm in a number of areas simultaneously. International relationships are very strained over the South China Sea issue, where all of China's maritime neighbours are united in holding off a bullying position. Arresting South African nationals for opaque reasons while their Secretary of State is on an official visit smacks of diplomatic clumsiness of the first order.

If this were not enough, China is sitting on a ticking real estate time bomb, where leveraging mortgages has been taken to a new level. The financial exposure here makes the stock market issue pale in comparison, though it doesn't currently seem likely that the stock market issue will trigger a real-estate collapse.

All of this may be saveable by the government. After all, the rules in China aren't the same as any other country. The State and the Party rule, not the democratic free market. But these problems highlight the imbalances in doing business with the Middle Kingdom.

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