Though big reason Chinese shares are sinking is that Beijing is trying to undo some of the measures it took to prop up stock prices after the Shanghai market collapsed in June. Those who are watching the developments in China have found the following three reasons behind decelerating Chinese Economy:
- Tumbling Currency
- Tough Transition
- Economic Mismanagement
Tumbling Currency: Chinese Govt. had devaluated its currency by about 2 % in the month of August 2015 , thus surprising the entire world. Pessimists felt that the Chinese Govt. was so desperate and worried about its economic growth that, by devaluating its currency it planned to assist the Exporters in foreign markets which would make Chinese products more affordable and cheap.
The Yuan after stabilising for about three months again showed signs of weakness since October 15 and dropped by more than 4 % against the US $. Though the Chinese Govt. said that they were only responding to the market signals, the Chinese Economy was weakening since last many years and the bubble had to burst one day, which resulted in the devaluation of Yuan.
Tough Transition: The Chinese Economy is going under transition from earlier growth of the past quarter-century which was built largely on massive investment in real estate and factories, much of it increasingly wasteful and inefficient to toward slower but more sustainable growth built on spending by Chinese consumers. Chinese Govt. is also pushing the country away from overdependence on manufacturing toward more reliance on services industries. Thus transition from a sprawling and enormously complex economy was seemingly difficult, and resulted in weakening Economy.Economic mismanagement: Chinese policymakers, long admired for their stewardship of a fast-growing economy, have worsened things by communicating poorly, meddling clumsily in the markets and backsliding on reforms.
The government's heavy-handed attempts to stop a freefall in the Shanghai stock market dismayed those who had hoped China was moving toward a more open financial system. Chinese authorities banned investors from betting against stocks, suspended trading in hundreds of companies and poured money into the market. At first, the desperation measures seemed to work. Yet stocks plunged again once the government began to back away.
The Govt. authorities have repeatedly confused investor. Officially, the Chinese economy grew about 7 per cent last year. Some economists suspect the actual growth rate might be 6 percent or lower. The government's heavy-handed attempts to stop a freefall in the Shanghai stock market dismayed those who had hoped China was moving toward a more open financial system. Chinese authorities banned investors from betting against stocks, suspended trading in hundreds of companies and poured money into the market. At first, the desperation measures seemed to work. Yet stocks plunged again once the government began to back away.
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