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How long until the Shanghai stock exchange crisis affects the Chinese economy?

Posted June 10, 2008

The Shanghai stock exchange has entered a protracted bear market, losing more than half of its valuation. How long until the financial crisis spills into the overall economy?

by George Wehrfritz

Baltimore — (TFN): Since peaking last October, shares on the Shanghai Stock Exchange have lost half their value—an ignominious tumble capped when prices plummeted 7.7 percent on Tuesday. By the close of trading the Shanghai Composite Index (the broadest measure of all shares traded on the exchange) stood at 3,073, down from a peak of 6,124 last Oct. 16.

“The environment is highly uncertain,” says Vincent Chan, chief equity strategist at Credit Suisse in Hong Kong. “The market is looking at the emergence of slower growth and higher inflation globally.” (…)

One lingering question is the extent to which the market downturn will crimp Chinese household consumption. In other countries, market corrections as severe as China’s have set off corporate downsizings, pushed up unemployment, forced small-time investors to rein in their spending and spread the pain everywhere from airlines to restaurants and boutiques. In contrast, China’s boom-bust cycle hasn’t yet jumped the firebreak from finance to the real economy, though a survey conducted by Deutsche Bank in May suggests that urban Chinese investors have suffered market losses equivalent to three quarters of their annual income and as a result now spend less traveling, shopping and dining out.

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