When China's stocks crashed last month, economies across the globe worried about a market meltdown; China, the United States, and countries across Europe worried whether the hard-won economic recovery could be on the brink of reversal. The Dow plunged 1,000 points, the worst day since August 2011. Stocks for a number of large American companies also fell the same day. A few weeks later, China's economy is still limping along and their slowing economic growth may be even worse than originally feared. Some worry that without improvement, China could bring on the next recession.
China has the second-largest economy in the world and has had explosive growth for the last twenty years. Its rapid industrialization has also fueled growth in other countries that feed China's appetite for natural resources, such as Brazil. As a juggernaut leading global growth, China's slowing economy has produced fears that many countries might find their own economies declining, and even sliding back into a recession.
In the weeks following the plunge, China's government intervened in order to prop up the domestic market and to stabilize the yuan and prevent the currency from spiraling into a freefall. However, China's slowdown may be worse than originally predicted: in the last month, its output of industrial commodities weakened, growth in factory output missed predictions, and production of steel and coal declined. The government is aiming for 7% economic growth in 2015, the lowest in fifty years (CNBC, 9/13/15).
Volatility in America's own stock market from China's instability and fears of an economic slowdown may affect the Federal Reserve's decision whether to raise interest rates on Thursday. A majority of economists polled believe that the Fed will not raise rates amidst the uncertainty (The Wall Street Journal, 9/14/15). Meanwhile, some 75% of investors view China as the largest risk to investments and only about 20% feel positive about the global economic outlook for the coming year (Business Insider, 9/15/15).
China's weakening growth could send other countries into a dangerous downward spiral. The repercussions of the stock market crash has been a rollercoaster, which other economies have no choice but to ride.
Readers, do you think we should be worried about China? Comment and let us know!