Stock Market Drop In China Raises Concerns About An Economic Crisis Chinese stock markets plunged for the third straight day this week. That was despite more government efforts to prop up share prices. The markets have lost some $4 trillion in the past 3 weeks.
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Stock Market Drop In China Raises Concerns About An Economic Crisis

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Stock Market Drop In China Raises Concerns About An Economic Crisis


These are tense moments for two of the world's economies. We'll hear the latest news on Greece in just a moment, but first to a possible crisis in the world's second-largest economy. Chinese stock markets are seeing a dramatic plunge with no end in sight. In the past three weeks, the markets in China have lost some $4 trillion, and this is despite efforts by the Chinese government to prop up share prices. NPR's Anthony Kuhn reports from Beijing.

ANTHONY KUHN, BYLINE: The mood at one retail brokerage downtown was subdued with mostly retirees and casual investors watching the numbers on the big boards. Outside, one investor - who only gave his family name, Lee - says although he's lost some money, he's still come out ahead this year.

LEE: (Foreign language spoken).

KUHN: "I got in late last year when the market was still good," he explains. "What I've lost is mostly just profit, not my initial investment." Today the Shanghai and Shenzhen markets fell by 5.9 percent and 2.9 percent, respectively, even as the government gave brokerages more money to buy up stocks. Nearly half of listed companies halted trading to try to wait out the market turbulence.

Beijing University finance professor, Michael Pettis, says the current route highlights the speculative nature of China's markets. He says they're speculative because investors lack reliable information on certain things.

MICHAEL PETTIS: Value investors require high-quality macroeconomic data, high-quality financial statements, a clear understanding of what managers are supposed to do, corporate governance, and they need to know that the rules of the game are stable.

KUHN: Without that information, Pettis says, it's hard for investors to calculate what companies are worth and how they'll perform in future. What China does have, Pettis says, is a lot of speculative investors betting on short-term changes in economic supply and demand. Speculation makes China's markets more volatile, especially because many speculators borrow money to invest. And, Pettis says, because they tend to think the same way.

PETTIS: Almost everybody that I spoke to had the same strategy - I know this is a bubble, I'm going to ride it on the way up and I'll be able to get out before it breaks.

KUHN: So Pettis was not surprised to see a stampede for the exits when the bubble broke. He predicts the crash could hurt confidence in the government and depress consumer spending at a time when China is trying to make consumption the engine of economic growth. Anthony Kuhn, NPR News, Beijing.

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