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China Stocks

Let’s Blame China

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First, a little disclaimer, the title was inspired by my friend Zhong Siwei “Let’s think China” blog. I think this pretty well summerizes the “blaming game” after yesterday’s global market sell off. Whether it has credit or not, from CNBC to the Newspaper and Internet, all fingers pointing to one place, China. No wonder typically soft spoken Premier Wen Jiabao, firmly declared “financial market stability is the key….”. I think he really meant “it’s not our fault”. 

Seriously, the developed world got to know China much more than 10 years ago, from business transactions and cultural exchanges. But on the other hand, some of the misunderstanding remains: for one, mistaken China economic growth with Shanghai Composite Index. Those two things are not closely correlated. The Chinese economy has been growing at 10% for about 10 years now, but the Chinese stock market only took off in last year. A 9% drop in Shanghai does not necessarily mean a slowing economy. People will continue going to McDonald, KFC, Wal-Mart, IKEA and Bestbuy. The business will continue to buy computers, software, and equipments. At some point the economy growth rate will slow (say to 5%), but will it be in the near future?

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