China's stock market crash vs The Great Depression

China Stock Market: Is it a Market Meltdown or just a contemporary crisis?
Timeline of Shanghai’s Stock Exchange:
Between June 2014 and June 2015, China’s Shanghai Composite Index rose about 150 percent, reaching a peak of 5,166 on June 12.  By July 8, the bottom fell out of the market, which fell to 3,507 in less than a month. A huge decline of 32 percent, forcing Government to intervene and stabilize market pushing it back up to 4000.  However, government policies seemed inefficient to save the 5th largest stock market, whose market capitalization is at $5.5t (on 1st of September). The reprieve was short lived, losing more than 40 percent of its value and reaching 3097.18 by September 19.




Government’s Actions:
            Xi Jinping's Administration made several efforts to stop the crash, by banning listed company shareholders with big stakes to sell shares and devaluating renminbi by 1.9 percent.  Nonetheless, China’s Central Bank had used the CSFC (Chinese Securities Finance Corporation) to help Chinese buy stocks with borrowed funds, to prop up stock market crisis.  The authorities hoped that these actions will help to stabilize market above 4,000. However the market had other ideas.  China stocks are still at low levels, requiring further government support. 

                                                 Market Boom fuelled by debt:
            


            Loose regulations on buying stocks with borrowed money drove the Shanghai Stock Market into a ‘margin trading’ balloon.  By the time the stock market reached the peak on June 12, people had bought 2.2 trillion yuan ($350 billion) of mainland stocks with borrowed money.  Nevertheless, this figure may understate the precise figure, as the Chinese investors invent several ways to covertly invest borrowed money – an estimate of another 2 trillion yuan ($320 billion) in the stock market.


                               China’s Market Collapse VS Great Depression

            Caution: How is China’s Market Collapse linked with Great Depression?  Borrowing played a prominent role in one of the most famous stock market bubbles, which subsequently lead to the biggest Stock Market crash in History.
 America’s in the late 1920’s



The Chronicle:

America in the 1920’s has a very close connection with China today.  United States had a workforce that was rapidly becoming more educated and urbanized (similar to China).  Simultaneously, stock trading became a conventional phenomenon, where ordinary people discovered the idea of trading stocks with borrowed money.  This lead to the NYSE and Dow Jones Bubble on Oct 29, 1929.  The aftermath of ‘Black Tuesday’ and the Wall Street Crash was a devastating increase in unemployment of 607% in the States, trickling down to the Global Depression, leading to the worst global downturn in Modern History.

 Contagion:

            China’s Market Crash began innocently, with a fall in markets crash, causing a slowdown in growth.  Yet, the plunge spread out to other Asian Markets, such as Japan (Nikkei Index) and to the Malaysian Stock Market.  This followed by a nasty drop in American Markets last week.  The nervousness is seen also in commodities, where oil price sinks to a six-and-a-half-year low.  A broader index of 22 commodities compiled by Bloomberg is at its lowest since 1999.  Markets turns to safe-haven assets such as government bonds issued by America and Germany.

Conclusion:

            Following black Monday, the Chinese Stock Market experiences sweeping, where country’s authorities  have arrested and questioned 197 people for spreading online rumours, leading to more than £60bn wipe off stocks. The Chinese Economy is undergoing a significant transition towards a more balanced economy.  The new Chinese leadership is focused not just on achieving new peaks, but shifting into a less risky and sustainable environment.  Structure and regulation is vital in achieving the new goals for the Chinese Leadership, distinguishing their priorities against the previous leadership.

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