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China experiences massive stock market decline

July 31, 2013

China has been viewed as one of the most economically accomplished Asian nations for much of the past decade. Counted among the fast-growing BRIC countries, the nation spent a great deal of the 2000s building up its property and manufacturing markets. However, over the past two or three years, the frenetic pace of China's economic growth began to take its toll on the country's long-term fiscal well-being, and the signs of this are starting to surface. Recent issues may provoke those involved in China's financial sector to strategize over the phone with colleagues using international calling cards

The most recent example of this can be seen in the decline of the Shanghai Composite Index (SHCOMP), China's primary stock exchange. According to Bloomberg, the SHCOMP has dropped by 43 percent from its record high and lost $748 billion in market value. While China is still the world's second-largest economy in terms of purchasing power parity - barely $3 trillion behind the United States, according to the World Bank - this drop in stock is likely to alienate foreign investors. Additionally, the government is slated to close more than 1,400 factories.

One analyst, Carter Worth of Oppenheimer & Co. in New York City, referred to Shanghai's market as a "dead animal," and said that its chances of recovery in the immediate future are slim.

The Wall Street Journal reports that on July 31, shares of property development firms experienced slight upticks, all between approximately 4 and 5 percent. According to the source, the Politburo of the Chinese Communist Party and Chinese President Xi Jinping released a statement in which they committed to fostering more stable, long-lasting growth in the property market. During the recent financial crises, Chinese policymakers had imposed restrictive measures on property development that both helped and hurt the sector, and those in the industry hope these will begin to relax.

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