Why Chinese stock markets crashed

 

China is making new friends but all is not well within china this week Chinese stocks recorded their biggest fall since 2008 biggest fall in 14 years the scale of the losses is best described by this report the wealthiest people of china lost 72 billion dollars in a day that's right a collective loss of 72 billion today the Chinese markets did bounce back Beijing made an intervention the top economic policies ours of xi JinPing issued a statement they vowed to ensure stability in their markets the comments were welcomed by investors but this recovery looks tepid especially when you consider the last 12 months since 2021 Chinese stocks have lost 75 of the value in the u.s 75 so they are selling in the u.s market at a 75 discount that's the extent of the devaluation china's economic problems are compounding it began with Beijing's crackdown on tech titans in china the defaults in china's property sector made it worse and now two new problems have spooked investors the first one is china's latest Wuhan virus outbreak it's simply too big to ignore now nearly 30 million Chinese citizens are under lock down 30 million at least 13 cities have shut down this includes the economic hub of  Shenzhen alone accounts for 11 percent of china's GDP that's worth close to two trillion dollars let's put those numbers in context Shenzhen's GDP is bigger than the GDP of countries like Spain or south Korea shutting Shenzhen down means losses in exports the lock downs will have a deep impact on the Chinese economy they threaten about half of china's economy according to one estimates one estimate problem number two is Russia's invasion of Ukraine Beijing is not openly supporting Moscow after the sanctions but even silent support has Repercussions two days ago investors began dumping Chinese tech stocks the total loss 2.1 trillion dollars you heard that right 2.1 trillion dollars worth of losses what was the reason behind this mass sell-off it was a report we told you about it Prussia had asked for china's military assistance Russia wanted Chinese military equipment it also asked for additional economic Assistance just this request led to a sell-off of 2.1 trillion dollars that's how markets work reports say the investors are worried they fear . If Beijing helps Moscow Chinese firms would be sanctioned next and this is a legitimate concern the us is making all of those threats the white house says if china backs Russia militarily in Ukraine there will be consequences well i'm not going to get into specific consequences i think what we have conveyed and what was conveyed by our national security advisor in this meeting is that should they provide military or other assistance that of course violates sanctions or or supports the war effort that there will be a significant consequences but in terms of what those specifics look like we would coordinate with our partners and allies to make that Determination looks like beijing got the message yesterday china's foreign minister issued a statement he said china wants to avoid being impacted by u.s sanctions that's wonky for you Beijing is also distancing itself from recent reports it denied the claim that Russia approached china for weapons and it labeled these claims as disinformation so for the moment panic in the Chinese market has been contained but on the economic front xi JinPing keeps stumbling from one crisis to another as long as that's the case the Chinese economy will struggle to bounce back.