China’s economy got off to a shaky lunar new year with Tuesday’s stock market plunge in Shanghai, which saw a fall of 9%, which then triggered the worst trading day in the US since 9/11.
Although yesterday’s (Wednesday) activity saw ‘Shanghai A shares’ gain some of their previously lost value (as well as the important ‘Shenzhen A’s), the incident showed how the tail can wag the dog – or, how China increasingly drives international economic sentiment.
Furthermore, with the US economy not exactly looking like a spring chicken – with higher oil prices, weak consumer spending, and billions being squandered in Iraq – it looks likely that the next time the Shanghai Stock Exchange sneezes, Wall Street could well catch a cold.
Tuesday’s global share-price stumble, being precipitated by mainland Chinese stocks, also ignited fears of the Chinese bubble bursting, or the economy generally overheating. With GDP figures in near double figures for the past few years, analysts actually remain confident of near 10% growth for this year, too.
House prices woe continues…
On a personal level, while it would not be in any way good for the economy to overheat, it would be a welcome relief if the housing market would scale back its prices to more realistic levels. As I’m keen to soon get on the property ladder, it’s highly disconcerting that, with each year I dither and fail to save adequately, housing prices are accelerating past earning increases, and way beyond inflation, like a Lamborghini drag-racing a lamb.
This means that entry into the brand-new housing market, even in a ‘second-tier’ Chinese city such as this one, Suzhou, will begin at a figure fast approaching 1 million RMB (that’s US$130,000, or EUR100,000). That figure is all the more amazing when you realise that average earnings in this city are just about 1,800RMB per month, meaning that the annual salary of an average 20-something person in this city totals just 0.02% of the cost of a nice new apartment.
The markets go on…
No lasting damage has been done from Tuesday’s Shanghai stumble, analysts reassure. Perhaps the eyes of the world’s economists and asset analysts will focus on Shanghai’s Pudong financial district as much as on Wall Street in the near future.
If any readers actively engage in stocks, or have insights into the Chinese housing market, please feel free to add your thoughts, below. Cheers.