This year, the Chinese economy has lost some of its luster and aura of perceived invincibility. The commodities boom went bust, affecting everything from oil fields in Texas to coal mines in Indonesia. While China had been on everybody’s mind for a while now, it’s taken five years for people to finally become worried about China’s slow-motion economic deceleration. This freak-out finally hit global markets this August. Between August 10 and 25, the Dow Jones industrial average plunged 11 percent, based on fears that everybody had underestimated China’s troubles and their impact on the rest of the world.
China’s deceleration is part of an official plan to shift from unsustainable growth from exports and wasteful investment to slower-but-steadier expansion based on consumer spending. However, its leaders have tarnished their reputation for economic stewardship through clumsily intervening to prop up plunging stock prices. Such a move confused the markets and devalued the Chinese currency.
Economists have begun to conclude that China’s official story of its economy growing at around 7 percent a year is too rosy, and that growth might be closer to 5 or 6 percent and most likely will weaken further. The economic slowdown of China, as well as a global oil glut, crushed commodities and energy prices. The Standard & Poor’s GSCI commodities index has plunged 34 percent this year to the lowest level since 1999, down 80 percent from its peak. A main reason of this was the Chinese economic slowdown; when they’re booming, Chinese factories took up about half of the aluminium, steel, copper and nickel in the world. Oil prices also tumbled from $98 a barrel two years ago to under $35. This was mainly due to unrestrained production across the world, which led to a major supply glut. How this will resolve itself remains to be seen, but it should be interesting. If you’d like to learn more, you can click here!