In the beginning of 2016, China’s stock market experienced a sharp sell-off of approximately 7 percent. This event sent a sudden ripple in the global economy as stocks tumbled around the world. Consequently, there were shock waves in the stock markets in the United States, Asia, and Europe. The Chinese Yuan had fallen to its lowest since 2011, and this led to a high demand for Chinese exports in the overseas market while making foreign investments more expensive.
The aftermath of trading suspension by the Chinese government revealed two critical indicators that the Chinese economy was declining faster than anyone had ever thought. There was an accelerating decline in China’s manufacturing sector, and the Yuan was continuously losing its value, making it impossible for an economic revival. China’s economic downfall engulfed the stock markets into a depression that could not be ignored, and this, later on, paved the way for trade wars between China and the U.S
There are a variety of factors in China that contributed to the tensions in the global economy in 2016. During the period, China was experiencing a falling demand for oil and this significantly depressed oil prices, which in turn influenced the United States, Russia, and the Organization of the Petroleum Exporting Countries (Wu, 2016). As a result, the economies of states that had greatly depended on China’s unquenchable demand for oil were relentlessly contracting with no hope of relief. The issue seemed to have escalated during the year because of the general oil pricing, which was declining in tandem with China’s need for crude oil.
Apart from the lower oil prices, which sparked anxiety in the global markets, the falling commodity prices in China was another significant contributor to the strain on the global economy. China boosts as the world’s largest consumer of products such as lead, steel, and other investment products. The economic slowdown in China led to a decreased demand for all the products, which negatively influenced commodity-exporting nations such as Indonesia, Peru, and South Africa who are beneficiaries for exports to China. There was a deflationary pressure on the global economy as the sudden commodity price decline posed a severe threat.
Additionally, trade reduction in China had a significant impact on the global economy. In 2014, China was the leading trade country and had a significant effect on global trade. China’s role in the worldwide economy was felt when the nation’s demand for imports dropped by a whopping 15% (Palepu, 2016). All of the states, depending on China’s trade relations, felt the effect of the declining trade. Consequently, the impact was felt by other countries that had no trade relations with China. Essentially, China’s declining imports had a direct and indirect influence on most of the companies around the globe. Corporations such as Apple and Microsoft, who had a command of the market in China, were directly exposed to the threat.
Major events in the world have had a significant impact on the world’s economy. The Chinese market crash in 2016 left a trail of economic pressure in the global economy that plunged financial markets into a crisis. Notably, the U.S stock market trembled as other European and Asian markets followed the trend. Chinese sudden market crash was influenced by factors such as falling demand for oil, declining commodity prices, trade reduction, and reduced imports to China. All of these factors destabilized most economies that were reliant on the country.
Wu, J. (2016). Understanding and interpreting Chinese economic reform. Mason, Ohio: Thomson/South-Western.
Palepu, K. G. (2016). Business analysis and valuation: Text & cases. Andover: Cengage Learning.