What in the world is wrong with China?


What in the world is wrong with China?
China panic grips investors.

Shanghai - China's stock market enjoyed a spectacular rally until mid-June when it suffered an even more dramatic decline.


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Published: Tue 25 Aug 2015, 12:00 AM

Last updated: Wed 26 Aug 2015, 9:59 AM

Asian stocks nosedived on Monday, led by sharp falls in Shanghai as concerns mount over the health of China's economy - the world's second-largest.
Although Chinese growth, a major engine of global expansion, has been slowing for some time, financial markets have nevertheless tumbled over fears it will decelerate faster than expected.
Here are a series of answers to key questions on the Chinese stock market and the wider economy:
China's stock market enjoyed a spectacular rally until mid-June when it suffered an even more dramatic decline, slumping more than 30 per cent over a three-week period.
Authorities rolled out a range of measures designed to restore confidence but they had only a short-term impact.
The rescue package included "big" investors being barred from selling their stakes, curbs on margin trading, and restrictions on short-selling - when investors bet prices will go lower. The state-backed China Securities Finance Corp also stepped in to buy stocks on behalf of the government.
In the latest measure that failed to impress, authorities at the weekend said the state pension fund would be allowed to invest 30 per cent of its total assets - a trove state media says amounts to $550 billion - in shares.
Beijing has also cut interest rates and issued a shock devaluation of its currency of nearly two per cent on August 11, causing the yuan to tumble almost five per cent over that week. The move will give exporters a boost but also raised fears that China is doing worse than had been thought.
Monday's falls take the Shanghai stock market below its level on July 8, when Beijing stepped in. It is also below its closing level on December 31 last year, meaning it has wiped out all its 2015 gains.
Analysts say shares are likely to go lower still as the plunge in global bourses is blowing back on China in what is effectively a vicious circle.
The yuan is widely expected to weaken further against the US dollar, although the central bank is likely to intervene to prevent steep slides.
Japanese bank Nomura expects the currency, currently around 6.4 yuan to the dollar, to depreciate further to 6.6 by the end of the year.
China's economy expanded 7.4 per cent last year, its weakest since 1990, and growth has slowed further this year, measuring seven per cent in each of the first two quarters.
It is a far faster growth rate than most other major countries, but the yuan move raised suspicions that the state of the economy is worse than officials have revealed.
After three decades of breakneck development, Beijing is trying to pull off a tricky rebalancing of the economy to make growth more consumer-driven and sustainable, but also making sure it does not slow so much that employment growth is severely affected.
Missteps along the way, including allegations it is wasting its reserves on fruitless attempts to support the stock market, also raised doubts over its economic stewardship.
China's second-quarter gross domestic product figure exactly met the government's full-year target of "around" seven per cent, leading some analysts to question the announcement, which came after several weak indicators. China has long faced accusations that the government massages economic figures during times of slowdown.
With Europe's economy weak and the US preparing to raise interest rates, the world has looked to China's to keep its finances humming and the realisation it can no longer be relied on has caused panic.
As the world's biggest trader in goods, China's thirst for raw materials fuels resource sectors around the world, and countries that rely on its appetite have already felt the effects, such as Australia, whose mining boom has ended as demand for iron ore dries up.

Investors react as they look at computer screens showing stock information at a brokerage house in Fuyang.
Investors react as they look at computer screens showing stock information at a brokerage house in Fuyang.

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