Chinese Stock Market Syndrome: Don't Let it Bring Us Down
By Joel D. Joseph, Chairman, Made in the USA Foundation
It appears that China's economy has caught the flu and we must stop it from spreading the fever to the United States. In the last several months China's stock market has plunged 44%. During the Great Crash in 1929 stocks tumbled 47% from September to November, and then fell much further over the next several years. In 2008, the U.S. stock market plunged 44%, but recovered much more quickly than during the Great Crash. The U.S. stock market has declined by ten percent this year already. Enough is enough.
"Chinese syndrome" refers a hypothetical nuclear-reactor accident in which the fuel would melt through the floor of the containment structure and burrow into the earth. "Chinese Stock Market Syndrome" means a severe stock market crash in China leading to a meltdown in the world economy.
China's Economy is Shaky
China's real economy is in real trouble, but the U.S. economy is not. Credit insurer Euler Hermes forecasted the number of corporate insolvencies to rise 25% this year in China. HSBC China Economist Julia Wang said in a report recently that China had unsold housing inventory of 1.8 billion square meters (19 billion square feet of space or 436,000 acres of floor space), which could house up to 90 million migrants from rural areas. This is more housing space than all of New York City! These are empty apartments, ghost towns that were built on credit, with billions in debt that is now past due.
In contrast, the U.S. economy is doing relatively well. Our banks are much stronger than they were in 2008. Reserves are double what they were before the Great Recession. There are no major bankruptcies like AIG, GM and Lehman Brothers that threatened the economy eight years ago. Our consumers are cautiously saving money now, while in 2007 we had a negative savings rate. Unemployment is at 5%, a ten-year low.