More on Chinese Stock Market Tumble

In a column today titled “China’s Market Sideshow Turns Into Main Event,” Bloomberg’s William Pesek, who I quoted in yesterday’s post on the Chinese stock market slide, said investors should not have been surprised:

. . . on a relative basis, China has become the key emerging market for the U.S. “To a significant degree, as China goes, so go the emerging-market returns of U.S. investors,” Quinlan said.

There you have it — the world’s most developed markets are more vulnerable than ever to the policies of officials in Beijing, regulators in Shanghai and companies throughout the most populous nation. Yes, China has vast potential. It boasts 10 percent-plus growth, $1 trillion in currency reserves and 1.3 billion people, many of whom are becoming richer by the day.

Yet it also has a banking system that’s still a transmission mechanism to funnel money into politically connected companies, little transparency, negligible press freedom and a central bank that reports to the Communist Party. China censors the Internet, undermining innovation in an economy that badly needs it. It faces worsening pollution and widespread risks of social instability.

So welcome to the brave new world of global finance, one in which hiccups in Shanghai will increasingly shake up markets across the globe and raise prickly questions about how stable the No. 4 economy really is. China’s stock market is no longer a side show, but a main event.

For more on the lack of transparency in the Asian banking system, see his Feb. 14 column “Independent Central Banks Are Rare Breed in Asia.”

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