Rauhala BEIJING

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By Emily Rauhala,
BEIJING — Steep slides of Chinese stocks in recent days are stoking global panic about the state of the world’s second-largest economy, with commentators ranging from Chinese state media to Donald Trump taking a doomsday view.
It has indeed been a brutal day in Chinese markets — and a very, very bad summer. But, while the plunge in China’s stock exchanges Monday and Tuesday signals big trouble, it does not mean things are about to collapse.
The problem is that investors seem to be reading what is happening in China’s highly volatile equity markets as a signal of the state of the economy as a whole — a mistake, experts say.
The two are linked, definitely, but not as much as those outside China seem to imagine. And the overall economy, though struggling mightily, is still showing some signs of life.
“Investors are overreacting about economic risks in China. The collapse of the equity bubble tells us next to nothing about the state of China’s economy,” Julian Jessop, chief global economist at Capital Economics, wrote in a note to clients Monday. “The recent data from other major economies have generally been good and there is little to justify fears of a major global downturn.”
“Many of the market’s substantive worries (economic collapse, financial collapse, competitive devaluation) are overblown,” echoed Arthur Kroeber, managing director of GaveKal Dragonomics, in his own note to clients.
“But markets trade as much on policy signals as on economic reality, and there has clearly been a breakdown of communication between Beijing and the rest of the world.”
[Get a grip! The markets are a little nutso. Don’t you go there, too.]
That breakdown in communication is mostly about how China’s government plans to manage the economy going forward — a question that increasingly affects the world.
China knows it needs to undergo a fundamental economic transition, moving away from pumping money into heavy industry, infrastructure investment and the property market, and toward services, consumer spending and tech — a shift that will bring slower growth.
The government understands this and has moved to temper expectations, calling slower growth the “new normal” and vowing to let markets play a “decisive” role in the years ahead.
The trouble is, …Read More