China Financial Crisis Thread (1 Viewer)

[Jobber]

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[jon_mx]

If they fail, do we owe them the trillions we have borrowed?

Absolutely. And then we will have to borrow even more money to bail them out.

 

[squidrope]

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[mrip541]

is anybody really surprised?

"The bubble seems to be bursting on a stock market run that began last summer. In a rally that began roughly a year before the market’s high point on June 12, the Shanghai index jumped 157 percent. The Shenzhen index rose even more during that period, rising about 208 percent. A smaller stock market in Shenzhen called the ChiNext, geared toward technology companies and start-ups, began its own bull run much earlier, in late 2012, and soared about 540 percent before the markets began to falter several weeks ago."

http://www.nytimes.com/2015/07/09/business/international/stock-sell-off-unabated-in-china.html

 

[Penguin]

Nikkei 225 down over 2.5% in the first few minutes.

The fun in China starts in a little over an hour.

 

[slackjawedyokel]

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[NREC34]

Hang Seng is up a decent amount so far. Maybe this was just another false alarm, who knows.

 

[Penguin]

Very surprised at the China rebound today, bodes well for the domestic market.

 

[dparker713]

If they fail, do we owe them the trillions we have borrowed?

Absolutely. And then we will have to borrow even more money to bail them out.

Exactly why would this be a problem?

 

[Fennis]

Very surprised at the China rebound today, bodes well for the domestic market.

The stock market is only one symptom of what's going on in China, even if the government managed to stabilize the short term markets it is only temporary.

 

[cstu]

China lost 10x Greece's GDP this month.

 

[johnnycakes]

China lost 10x Greece's GDP this month.

And chet lost 0.1x Greece's GDP this month.

 

[Fennis]

Chinese Yuan is rapidly losing value and China is trying to control it or at least pretend it is.

http://www.nytimes.com/2015/08/14/business/international/china-devalues-its-currency-renminbi-for-a-third-consecutive-day.html?_r=0

 

[Fennis]

Fed may not raise interest rates, due to Chinese economic news

http://money.cnn.com/2015/08/12/investing/china-yuan-fed-rate-hike/index.html?iid=EL

 

[Chadstroma]

I read a few things in the past discussing a slowed economy could actually cause major unrest in the country. It boils down to: China is not exactly the picture of freedom but the Chinese largely have not really cared much because of double digit economic growth that they experience meant overall people's economic lives were improving year over year. If the halts or reverses and their pocket books take a hit then unhappiness with the 'Communist' regime would grow and could end up toppling it if economic conditions were bad enough. It has only been a matter of time before the Chinese economy slows and eventually it will suffer a setback. Can the Chinese government survive?

 

[moleculo]

I read a few things in the past discussing a slowed economy could actually cause major unrest in the country. It boils down to: China is not exactly the picture of freedom but the Chinese largely have not really cared much because of double digit economic growth that they experience meant overall people's economic lives were improving year over year. If the halts or reverses and their pocket books take a hit then unhappiness with the 'Communist' regime would grow and could end up toppling it if economic conditions were bad enough. It has only been a matter of time before the Chinese economy slows and eventually it will suffer a setback. Can the Chinese government survive?

a Chinese government "reset" would set the global economy back by decades.

 

[Chadstroma]

I read a few things in the past discussing a slowed economy could actually cause major unrest in the country. It boils down to: China is not exactly the picture of freedom but the Chinese largely have not really cared much because of double digit economic growth that they experience meant overall people's economic lives were improving year over year. If the halts or reverses and their pocket books take a hit then unhappiness with the 'Communist' regime would grow and could end up toppling it if economic conditions were bad enough. It has only been a matter of time before the Chinese economy slows and eventually it will suffer a setback. Can the Chinese government survive?

a Chinese government "reset" would set the global economy back by decades

Decades? Not sure about that.

But how the government change would happen would be the major factor here. A full on revolution? Yup- huge world economic impact. A bloodless coup of some sort- not much at all.

 

[cstu]

I read a few things in the past discussing a slowed economy could actually cause major unrest in the country. It boils down to: China is not exactly the picture of freedom but the Chinese largely have not really cared much because of double digit economic growth that they experience meant overall people's economic lives were improving year over year. If the halts or reverses and their pocket books take a hit then unhappiness with the 'Communist' regime would grow and could end up toppling it if economic conditions were bad enough. It has only been a matter of time before the Chinese economy slows and eventually it will suffer a setback. Can the Chinese government survive?

This is exactly what I've been reading for years.

Recession + repression + 20 million men than women = trouble

 

[Chadstroma]

I read a few things in the past discussing a slowed economy could actually cause major unrest in the country. It boils down to: China is not exactly the picture of freedom but the Chinese largely have not really cared much because of double digit economic growth that they experience meant overall people's economic lives were improving year over year. If the halts or reverses and their pocket books take a hit then unhappiness with the 'Communist' regime would grow and could end up toppling it if economic conditions were bad enough. It has only been a matter of time before the Chinese economy slows and eventually it will suffer a setback. Can the Chinese government survive?

This is exactly what I've been reading for years.

Recession + repression + 20 million men than women = trouble

Let's say that everything is fine now.

Just imagine the economical impact of an population ageing problem they will have. Japan's current issues will look like childsplay.

 

[RedmondLonghorn]

I read a few things in the past discussing a slowed economy could actually cause major unrest in the country. It boils down to: China is not exactly the picture of freedom but the Chinese largely have not really cared much because of double digit economic growth that they experience meant overall people's economic lives were improving year over year. If the halts or reverses and their pocket books take a hit then unhappiness with the 'Communist' regime would grow and could end up toppling it if economic conditions were bad enough. It has only been a matter of time before the Chinese economy slows and eventually it will suffer a setback. Can the Chinese government survive?

This is exactly what I've been reading for years.

Recession + repression + 20 million men than women = trouble

Let's say that everything is fine now.

Just imagine the economical impact of an population ageing problem they will have. Japan's current issues will look like childsplay.

In a few years they'll just mandate that every couple must have three children by the time the woman is 25. And they'll raise the retirement age to never.

 

[Chadstroma]

I read a few things in the past discussing a slowed economy could actually cause major unrest in the country. It boils down to: China is not exactly the picture of freedom but the Chinese largely have not really cared much because of double digit economic growth that they experience meant overall people's economic lives were improving year over year. If the halts or reverses and their pocket books take a hit then unhappiness with the 'Communist' regime would grow and could end up toppling it if economic conditions were bad enough. It has only been a matter of time before the Chinese economy slows and eventually it will suffer a setback. Can the Chinese government survive?

This is exactly what I've been reading for years.

Recession + repression + 20 million men than women = trouble

Let's say that everything is fine now.

Just imagine the economical impact of an population ageing problem they will have. Japan's current issues will look like childsplay.

In a few years they'll just mandate that every couple must have three children by the time the woman is 25. And they'll raise the retirement age to never.

Based on the track record of the Chinese government.... wait.... you are not part of the Chinese Communist party.... are you?

 

[cstu]

The benchmark Shanghai Composite fell 6% on Tuesday, after falling 8.5% on Monday.

 

[Doctor Detroit]

China trying to manipulate their own markets is why India will pass us before they do as the preeminent economic power. Dumb.

 

[cstu]

China trying to manipulate their own markets is why India will pass us before they do as the preeminent economic power. Dumb.

An error occurredYou have reached your quota of positive votes for the day

 

[Chadstroma]

China: The new Spanish Empire?The Chinese crisis has important echoes of the Soviet Union and 16th-century Europe. And history tells us the outlook isn't pretty.

By Jacob Soll

The Chinese turmoil roiling markets right now presents a fresh and profound challenge to the world economy: For the first time, a giant, non-European superpower threatens world financial stability and the powers that be seem at a loss. If the IMF and World Bank have stumbled with Greece, how are they going to get a hold on the stock market travails of Communist China? What tools do we even have to affect how it plays out?

But if the particulars are novel, in the bigger sense this is a movie we’ve seen before. Though China has been the global economic star of the last low-growth decade, it remains a totalitarian dictatorship, with its economy shrouded in state secrecy. What we’re encountering in this crisis is the spectacle of a closed society colliding with the forces of complex, free-market capitalism. If we look beyond China, we can find a long history of these collisions, dating back hundreds of years, as both closed societies and capitalism evolved and became more complex. And the history has a clear but unsettling lesson to offer: When such a collision happens, it’s a moment to genuinely worry.

Since the dawn of capitalism, closed societies with repressive governments have—much like China—been capable of remarkable growth and innovation. Sixteenth-century Spain was a great imperial power, with a massive navy and extensive industry such as shipbuilding and mining. One could say the same thing about Louis XIV’s France during the 17th century, which also had vast wealth, burgeoning industry and a sprawling empire.

But both countries were also secretive, absolute monarchies, and they found themselves thrust into competition with the freer countries Holland and Great Britain. Holland, in particular, with a government that didn’t try to control information, became the information center of Europe—the place traders went to find out vital information which they then used as the basis of their projects and investments. The large empires, on the other hand, had economies so centrally planned that the monarch himself would often make detailed economic decisions. As these secretive monarchies tried to prop up their economies, they ended up in unsustainable positions that invariably led to bankruptcy, collapse and conflict.

In Spain, the result was a slow collapse, which has left it and its former empire suffering from perpetual economic crisis and political instability. In France, an open society would eventually be born through monarchial bankruptcy that pulled down banks around Europe, and ended in violent revolution and the vastly destructive Napoleonic wars.

More recently, Germany long struggled with the mix of modern industry, capitalism and authoritarianism. Throughout the 19th century, and into the 20th, Germany experienced massive economic growth under the hand of Bismarck’s central political authority; the result was a period of great strength, followed by crisis, war, political upheaval and the geopolitical and moral catastrophe of WWII.

And though we tend to forget this now, the Soviet Union experienced massive economic expansion for half a century. America feared it not only for its m military, but for the industrial might, expanding GDP and technological achievements that added heft to its ideological challenge around the world. Only after the collapse of the USSR in 1991 did we fully understand what was really going on behind the curtain. In financial terms, Soviet secrecy was very effectively shrouding the massive liabilities of the state. It had admirable steady growth, industrial production rates, and GDP rose—so much so that even until the early 1980s, the CIA saw the Soviet economy as a credible, competitive force. But in order to sustain economic growth, we can’t just look at output; we also need to see the long-term cost of the output, and the Soviet system allowed its leaders to shroud the unsustainable costs in inefficiency, lives, and environmental destruction that eventually brought down the empire.

China is a new case, for it has mixed capitalism and totalitarianism in a unique way. Unlike the USSR, there are privately owned companies and public investment. And yet behind banks, companies and the stock market still lies the heavy hand of the state. The Chinese government forces investment in the stock market and bolsters banks, companies and state entities with secretive cash infusions; it and hides toxic assets in its enormous and completely secretive sovereign wealth funds. The government may not be able to control the stock market, but it does successfully keep a veil over state finances. This is what closed, authoritarian governments have done since the 16th century.

China is now playing in world financial markets, but those markets are dynamic and resilient in part because they are relatively open—they can fail, but it’s reasonably clear why, and, in the best cases, the paths to reform are debated in public forums. In China, there are the mechanics of capitalism without the essential spirit of the system. As in imperial Spain, or Cold War Russia, there is neither transparency nor trust. There is no question that China has massive growth potential until its population curve starts to turn, but what we are seeing in this current financial crisis is likely to be only the beginning of the political and societal crisis brought about by a dictatorship’s efforts to simulate the performance of a capitalist economy—but one that only grows. The stock market is not real; government financial statistics are fake and obscured.

There is no historical example of a closed imperial economy facing large capital-driven, open states and sustainably competing over a long term. That is not to say that China isn’t an economic powerhouse and a remarkable site of energy and potential. It is certainly both. But we also know Chinese debt—as secret as the state likes to keep it—is enormous, and that its financial system is like any other bubble. It is predicated on inflated earnings reports and expectations. The great “Beijing Consensus,” China’s absolute commitment to showing 8% growth every year, is unsustainable, at least through legitimate means. And without it, China is beginning to look like an enormous totalitarian ponzi scheme—a phenomenon common enough in world history, but extremely dangerous be near in the long run.

It’s tempting to look for quick policy solutions, or—for some political candidates—to wave around threats as a way to gain leverage. But almost by definition, a society like China is immune to our efforts: if we don’t actually what’s going on, it’s difficult to exert even our limited influence in an intelligent way. In the short term, the best goal to push for is more transparency, in the hope that sunlight helps mitigate whatever shock is still coming. And until then, a healthy skepticism might be the best protection we can offer ourselves.

Jacob Soll, a professor of history and accounting at the University of Southern California, is the author of The Reckoning: Financial Accountability and the Rise and Fall of Nations.

 

[cstu]

There is no historical example of a closed imperial economy facing large capital-driven, open states and sustainably competing over a long term. That is not to say that China isn’t an economic powerhouse and a remarkable site of energy and potential. It is certainly both. But we also know Chinese debt—as secret as the state likes to keep it—is enormous, and that its financial system is like any other bubble. It is predicated on inflated earnings reports and expectations. The great “Beijing Consensus,” China’s absolute commitment to showing 8% growth every year, is unsustainable, at least through legitimate means. And without it, China is beginning to look like an enormous totalitarian ponzi scheme—a phenomenon common enough in world history, but extremely dangerous be near in the long run.

It’s tempting to look for quick policy solutions, or—for some political candidates—to wave around threats as a way to gain leverage. But almost by definition, a society like China is immune to our efforts: if we don’t actually what’s going on, it’s difficult to exert even our limited influence in an intelligent way. In the short term, the best goal to push for is more transparency, in the hope that sunlight helps mitigate whatever shock is still coming. And until then, a healthy skepticism might be the best protection we can offer ourselves.

 

[RedmondLonghorn]

"Enormous totalitarian Ponzi scheme" is a nice turn of phrase and dead accurate too.

 

[Chadstroma]

Brace for Quantitative Tightening, As China Leads Forex Reserves Purge
Thomson Reuters | Last Updated: August 29, 2015 12:06 (IST)
London: After six years of QE, prepare for QT.

Faith in the power of "quantitative easing" has prompted central banks, led by the US Federal Reserve, to pump trillions of dollars of stimulus into the global financial system to cushion the impact of the 2007-08 market crisis and recession.

This supply of liquidity continues to flow. The European Central Bank has taken the baton from the Fed and is leading the way with its 1 trillion euro ($1.1 trillion) bond-buying programme that will run through September next year. The Bank of Japan is also buying large quantities of bonds.

But a counter flow - call it "quantitative tightening" - is gathering force as China sells foreign exchange reserves to protect its economy and markets from the recent surge of capital out of the country. Other emerging markets are following suit.

Analysts at Citi estimate that global FX reserves have been depleted at an average pace of $59 billion a month in the past year or so, and closer to $100 billion over the last few months. A source at another large global bank said emerging market central banks may have sold up to $200 billion of FX reserves this month alone, of which $100-$150 billion likely came from China.

"The potential for more China outflows is huge," said George Saravelos, currency analyst at Deutsche Bank in London. "The bottom line is that markets may fear QT has much more to go."

China is by far the world's biggest holder of FX reserves, most of which is in dollar-denominated assets like U.S. Treasury bills and bonds. At the end of June it had $3.69 trillion compared with around $150 billion at the turn of the millennium.

But that has fallen steadily from a peak of almost $4 trillion a year ago. Some of that is down to exchange rate fluctuations as the dollar has risen, but an increasingly important driver recently is outright selling.

It's difficult to know with certainty how much and which assets specifically China has sold, because the currency and asset composition of its reserves is not disclosed.

Using International Monetary Fund currency reserves data as a proxy, around two thirds will be in dollars. U.S. Treasury data show that China holds $1.27 trillion of U.S. bills and bonds, but analysts agree it is substantially more than that.

China and emerging markets led the build up in global FX reserves following the 1997 Asian crisis to a peak of $12 trillion last year. This shielded them from the 2007-09 global crisis, and looks like it is once again being deployed.

"China selling long Treasuries ????" Bill Gross, the widely followed bond fund manager at Janus Capital, said on Twitter during Wednesday's selloff in U.S. Treasuries.

The implications of China and others selling off their Treasury holdings are potentially huge.

In isolation, a reserves drop the equivalent to 1 percent of U.S. GDP (around $178 billion) would lead to a rise of 15-35 basis points in the 10-year U.S. Treasury yield, Citi said, citing a range of academic studies.

Yang Zhao, Chief China Economist at Nomura, estimates that the People's Bank of China sold close to $100 billion of FX reserves in July, and again in August.

"Our calculation for capital outflow for July is $90 billion. But during July the exchange rate was unchanged, suggesting the PBOC sold a lot of FX ... close to $100 billion," Yang said in a briefing with journalists last week.

"After a 3 percent depreciation the PBOC tried to defend the renminbi and they started to intervene very aggressively. So I would say in August it would (also) be very close to $100 billion."

Plunging commodity prices and fears over growth prospects, particularly in China, have sparked a rush for the emerging market exits. Figures from CrossBorder Capital, a research and money management firm in London, suggests capital flight from emerging markets in the past year is almost $1 trillion, of which more than $750 billion has come out of China.

This has forced many emerging market central banks to dip into their reserves to manage the fall in their currencies and stop it from turning into an even more savage rout.

But fears of intensifying global "currency wars" have been stoked by China's devaluation of the yuan earlier this month, renewed slides across global EM exchange rates and subsequent devaluations of the Vietnamese dong and Kazakh tenge.

 

[Dinsy Ejotuz]

I don't have a sense of the scale of $100b/month vs what they're holding in total or how much of those reserves are dollars -- but at some point if the totals are big enough a flood of dollars onto the market sees their value reduced and we get inflation.

 

[Fennis]

China trying to manipulate their own markets is why India will pass us before they do as the preeminent economic power. Dumb.

India has an even bigger corruption problem than China. India also has a significantly bigger poverty problem than China. India has a much longer path than China.

 

[cstu]

China trying to manipulate their own markets is why India will pass us before they do as the preeminent economic power. Dumb.

India has an even bigger corruption problem than China. India also has a significantly bigger poverty problem than China. India has a much longer path than China.

But as a democracy they have a better chance of reducing corruption than China. Indians appear to finally be getting fed up with corruption.

India ranked ahead of China in corruption for the first time in 18 years.

 

[Fennis]

A reminder: China's stock market is a clown show

Just as "bad cases make bad law," to cite the ancient legal adage, bad stock markets make for bad investment decisions. China's stock market, with its repeated crashes, has the entire world in a tizzy.

The Shanghai stock exchange experienced its shortest trading day ever on Wednesday, as circuit breakers designed to end trading if the market slid 7% kicked in after only 14 minutes of active trading. As my colleague Julie Makinen reported, the Shanghai Composite has dropped about 12% this year, and the Shenzhen composite has fallen more than 15%.


Investors in the U.S. have taken the opportunity to sell. As of Thursday's close, the Standard & Poor's 500 index is down 4.67% from the opening bell for 2016 trading Monday, theNasdaq has lost 4.29%, and the Dow Jones Industrials have shed 5.12%. European stocks have marched over the cliff in tandem.in the U.S. took the opportunity to sell. As of Thursday's close, the Standard & Poor's 500 index is down 4.67% from the opening bell for 2016 trading Monday, the Nasdaq has lost 4.29%, and the Dow Jones Industrials have shed 5.12%. European stocks have marched over the cliff in tandem.

The world should take a deep breath. The China stock market meets the definition of a bad stock market.

The market is the target of relentless intervention by the Chinese government, which has been setting investment rules and tweaking them without any evident understanding of how open markets work. Adding to the chaos, the market was inflated by an inflow of small investors buying on huge margins — a notoriously skittish class of investors buying under conditions that made them especially vulnerable to the market's volatile swings.

Last April, as Evan Osnos of the New Yorker reported, the official organ of the Chinese Communist Party exhorted citizens to plunge into the market. An upsurge of more than 80% in four months was "merely the start of a bull market." Investors should take heart from the government's determination to keep Chinese companies strong.

"Over the next two and a half months, investors opened thirty-eight million new stock accounts, more than quadruple the number of accounts opened in all of 2014," Osnos wrote. "Retail exchanges, equipped with audience seating, attracted retirees and other small-time investors who spent hours scanning the digital displays, like visitors to the dog track."

This was a bubble primed for pricking. But that wasn't all. On July 8, during a major market crash, Chinese regulators imposed a lockup on shareholders owning 5% or more of their companies, prohibiting them from selling for six months.

The effect of lockups is well understood in mature stock markets; they tend to create latent bearish pressures as the expiration approaches. That expiration was due for Friday, Jan. 8, plainly creating some of the downdraft witnessed this week.

The circuit breakers are another source of trouble. Introduced Jan. 4, the rules halt trading for 15 minutes after a 5% drop in the benchmark CSI 300 index, and stop trading for the rest of the day when the index falls 7%. They were triggered on day one, and again on Wednesday.

Circuit breakers exist in U.S. markets, but critics say they're cinched too tight in China, where 5% swings have been far more common. In the U.S., trading is shut down only if the Standard & Poor's 500 benchmark falls 20% in a day.

Adding to the confusion is that Chinese authorities lack the courage of their own convictions. On Wednesday, regulators tried to keep the bear caged by extending the stock lockup for three more months, albeit in modified form--big shareholders could sell, but only up to 1% of their companies' shares. And following the circuit-breaker meltdowns of Monday and Wednesday, they scrapped the circuit-breakers themselves, a clear indication that they were not implemented properly in the first place.

Among other signs of the immaturity of the markets and their regulators are stiff limits on short-selling--after a market crash this summer, the Shanghai and Shenzhen exchanges banned one-day short sales, in which traders place short orders and cover them on the same day. Mature exchanges understand that short selling is an indispensable relief valve for overheated bull markets.

All these features, artifacts of the government's inclination toward intervention in the stock market on the bull side, make the market an unreliable gauge of economic trends, many critics say. (Though they're not unanimous — last February, economists at MIT and New York University argued that the market had matured to the point that it was providing reasonably accurate signals about future corporate earnings. "China’s stock market no longer deserves its reputation as a casino," they wrote.)

None of this means that there's not cause to be concerned about the Chinese economy and its effect on world markets. Underlying the Chinese market plunge are signs that the world's second-largest economy is slowing down, and that government economic officials aren't fully up to the task of managing it.

They've been frantically depreciating the Chinese yuan, which will put pressure on the nation's trading partners by making Chinese exports more competitive and imports more expensive. The rapid depreciation sends a signal, moreover, that policymakers are getting to the end of their stimulative arsenal.

Adding to uneasiness about government policy, no one has ever been entirely certain about the pace of China's economic growth because its official figures are untrustworthy. Gross domestic product may have been overstated as much as three-fold, some observers believe.

There's no question that cracks in the Chinese economy are worrisome, but the wild swings of the stock market may be exaggerating the mood of panic. It makes sense for investors worldwide to keep their eye on the economy, but the stock exchanges? Just watch the ride.

 

[Fennis]

China’s Woes Unnerve an Expensive U.S. Market

The continuing Chinese market turmoil is hurting U.S. stocks for two reasons.

First is the risk that China’s shaky economy will slow growth in Europe and Latin America, hurting the big multinational companies that dominate U.S. stock indexes. Second is the fact that U.S. stocks have been looking expensive and unstable for more than a year, so they were ripe for a pullback.

The Dow industrials last hit a high in May of 2015, eight months ago. Since then, smaller stocks and those in troubled sectors such as energy and commodity production have been falling behind, leaving fewer stocks to keep pushing indexes higher. The bull market has been running for nearly seven years and it is getting old. Meanwhile, the weak global economy is holding back earnings at multinationals, further clouding the U.S. outlook.

“Our investment outlook for 2016 calls for heightened volatility, given the large number of loose ends and wild cards that could influence market behavior,” said Robert Landry,portfolio manager at USAA Investment Solutions, in a report to clients.

The Dow, recently down 1% at 16731, is down 4% this year. If it closes at that level, it would be the worst start to a New Year since 1991, when it fell 4.2% over the first four trading days. In the epic 2008 downturn, the Dow’s decline over the first four days was 3.3%.

For all their troubles, however, U.S. stocks haven’t fallen into a bear market, defined as a decline of 20% or more. The big reason is that the domestic economy has been steadily improving. Weekly jobless claims announced Thursday were moderate and economists hope Friday’s report on December job growth will show continuing gains. Wages are rising. U.S. auto sales hit a record last year for the first time in 15 years. Auto-industry analysts are forecasting another record this year.

Few economists see signs of a recession. The biggest stock declines in the past have occurred at times of recession, such as the bear markets of 2000-2002 and 2007-2009. Bear markets do happen outside times of recession, but they are generally shallower and shorter-lived, lasting only a matter of months.

The big worry right now is that offshore events could harm U.S. markets further. As China’s economy has grown larger and more complex, its pace of growth has slowed, and with that slowdown has come pain. The manufacturing part of China’s economy has been in decline for the past 10 months, based on surveys of major manufacturing companies. The International Monetary Fund forecasts 6.3% growth for China this year, down from more than 10% in 2010. China’ economy is opaque and government-dominated, and some economists say forecasts could be too optimistic.

To boost its exports and cool imports, China has been devaluing its currency. The devaluation has hurt its trading partners, notably developing countries such as Brazil. Thursday’s 7% drop in China’s domestic Shanghai Composite Index was touched off by the latest devaluation.

For the second time this week, trading was halted for the rest of the day. The Shanghai stock market is mostly closed to foreigners and the Chinese investors who dominate it tend to pull money out at times of devaluations, partly to move money into foreign currencies.

The anxiety has been made worse by world events, including North Korea’s latest nuclear test and continued saber-rattling between Saudi Arabia and Iran.

On top of everything else, the U.S. Federal Reserve began raising interest rates in December. Higher rates mean greater borrowing costs for Americans. Tighter money also means less cash sloshing around in the financial system, providing less fuel to push markets higher.

All of this explains why many money managers are predicting more up-and-down swings in U.S. markets this year, after a volatile 2015. Of particular concern are oil prices, which have hit their lowest value since 2008 in New York trading. The fear is that oil’s continuing decline will cause some smaller U.S. energy companies to fail. Energy companies have been heavy issuers of junk bonds, which helps explain why those bonds have suffered in recent months.

The good news is that global economic weakness probably will slow down any plans the Fed has for further interest-rate increases. U.S. rate increases push the dollar’s value higher, which hurts foreign governments that have borrowed money in dollars. The stronger dollar along with global economic weakness has led global investors to pull money out of developing-country markets, further damaging local economies. Fed officials have worried that U.S. rate increases could damage the world economy.

Money managers widely believe that, before U.S. stocks could fall into a bear market, the world situation would need to get worse than it is now. Europe’s economy continues to show signs of recovery, despite the global woes. Falling Chinese stock indexes mostly affect local investors, since foreigners are mostly excluded from domestic Chinese stock trading.

But no one can guarantee that things won’t get worse, which is one big reason that U.S. markets have opened the year with such sharp declines.

Corrections & Amplifications

An earlier version of this story incorrectly said 2016 potentially had the worst start to a trading year since 1997. It was potentially the worst start since 1991.

 

[Quez]

If they have civil unrest the Chinese Government will really turn up the oppression.

 

[Rohn Jambo]

China has so many get rich quick schemes. I heard the newest bubble to burst may be Farmers Financial Cooporatives not able to pay back depositors.