Chinese stocks are falling amid botched trade negotiations that have now led to increased chances of more import taxes on potentially all Chinese goods.
The Shanghai Composite Index, the main stock market in China, has dropped from 3,280 on April 22nd to now 2,900, a fall of about 12.5%.
As can be seen, Shanghai stocks were on the run since December following one of the worst year in 2018. Now they’ve turned downwards again and appear to be testing support.
The Yuan is down too, falling 3% against the dollar and now nearing 6.9 CNY to USD.
Yuan used to be not too far off from parity with the dollar in the 80s, but communism started going awry and then it falls, with Yuan reaching close to 9 in its all time low.
Starting in 2005, the great manufacturing migration begins improving China’s economy. The banking collapse then accelerates Yuan’s gains with a boom in 2015-16 sending Chinese stocks to the stratosphere and the Yuan at its highest against the dollar since the fall of communism.
Then there’s Brexit and Trump and a potential restructuring in global trade.
Looking at the data, China is sort of in decline with its GDP growth halved from 12% in 2010 to now circa 6% a year.
That’s close to its lowest it has been since the fall of communism, but that 6% is double the yearly growth of America’s economy.
We can clearly see here these cycles of booms and busts, but also a narrowing of growth from at time above 12%, to now not crossing 5% since the new millennium.
On inflation, they’re circa at the same level. China at 2.5%, while America is about 2%. Interest rates in USA have stayed above inflation at 2%, while in China they’re at 4.35%.
So borrowing in China is quite a bit more expensive with most of their growth coming from external investment and exports.
That could potentially make them vulnerable to these tariffs, but even on all $500 billion in US-China trade, the effects might still not be very significant considering their total GDP of $12 trillion.
It might however re-balance relations and that could have an effect on some companies and some sectors, especially in tech generally and maybe cryptos more specifically.
Bitcoin has been on the run since December, as have other cryptos. Part of it might be factors specific to it, in addition to macro events like the turn of western stocks into green since December.
In April, however, bitcoin appears to have accelerated its growth, contrasting with Shanghai stocks and the Yuan.
Whether there’s a correlation can’t easily be established, but it may be some Chinese investors might have moved from stocks to crypto.
Some sectors therefore, especially tech manufacturing, might benefit as corporations might start considering investing in robotizing factories. That could spur economic growth more generally, but how it will all develop remains to be seen.