[The chances of a financial collapse that could shake the world are slim. The Chinese government has vast sums of money it can tap in the event of a crisis. And there are steep financial barriers to keep money from fleeing the country. While investors have ways around the barriers, they limit the possibility that such a flight could bring one of the world’s most important growth engines to a halt.]
By
Keith Bradsher
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On
the display boards at securities brokerages in Beijing, red means a rising
stock
and green
a falling stock. Lately, for many investors, there has been too much
green. Credit
Wu Hong/EPA, via Shutter stock
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SHANGHAI — Months of struggling with economic
problems at home and bickering with President Trump over trade are starting to
take their toll on China’s financial health.
China’s stock market has now fallen close to
levels not seen since a crash shocked global investors three years ago. An
elite Chinese think tank affiliated with the government warned this week that
the chances of a financial panic had risen significantly, shaking markets even
more.
Chinese officials are trying to help
factories deal with American tariffs by weakening the value of the country’s
currency. That makes Chinese goods more competitive abroad, but it also gives
investors inside and outside China a reason to take their money out of the
country. And it offers Mr. Trump an opportunity to criticize Beijing — in the
past, he has railed against the country for weakening its currency.
The chances of a financial collapse that
could shake the world are slim. The Chinese government has vast sums of money
it can tap in the event of a crisis. And there are steep financial barriers to
keep money from fleeing the country. While investors have ways around the
barriers, they limit the possibility that such a flight could bring one of the
world’s most important growth engines to a halt.
Nevertheless, China faces some increasingly
serious economic challenges. It is trying to tackle its considerable debt
problems without starving its economy of the money that keeps growth chugging
along. The president’s tariffs so far have been quite small in the grand scheme
of things, but they add to China’s troubles. The next wave of tariffs, set at
25 percent, threatens to cover at least a tenth of China’s exports to the
United States, and more could follow.
China’s stock markets reflect the
uncertainty. The Chinese stock market as of this week is down more than 20
percent from its January peak, making it a bear market. The country’s main
stock index lost nearly 1 percent on Thursday.
“You don’t know what Trump is going to do
next,” said Hong Hao, the chief market strategist in the international unit of
the Bank of Communications, one of China’s biggest banks. “Normally at this
level, there should be a technical rebound.”
China’s moves with its currency reflect its
difficult balancing act. The Chinese central bank has guided the currency
steadily lower against the dollar, particularly in the past two weeks, as the
likelihood of further American tariffs on Chinese goods has increased. The
currency is down more than 5 percent from its peak in February.
One indication of investor sentiment about
China is the small amount of China’s currency that is traded outside its
borders. China keeps the value of its currency in an iron grip, but investors
in places like Hong Kong can trade it more freely.
The value of the renminbi has fallen somewhat
faster lately in the less-regulated Hong Kong market than in Shanghai trading.
A widening gap between the two markets has long been a sign that investors are
worried about the currency.
China faces still more obstacles. The United
States Federal Reserve has begun raising short-term interest rates. That
increases the cost of borrowing money for Americans and, given the vast
influence of the American economy, for the rest of the world. Such rate
increases have caused unpleasant economic surprises worldwide in the past,
which could hurt China if growth slows in the markets where it sells its goods.
As if investors did not already have enough
to worry about in China, a deeply pessimistic internal government analysis has
widely circulated on social media this week. The analysis was written by the
chairman of the National Institution of Finance and Development, a
Beijing-based research group, and by three other economists.
A person who picked up the phone at the think
tank said that the document was genuine and that its release had not been
intended.
The document said that with “the Federal
Reserve’s interest rate hikes and the long-term and highly uncertain trade
conflicts between China and the United States, we believe that in China there
is currently a high probability of financial panic.”
Other economists cautioned that the analysis
should not necessarily be treated as representing a consensus view within the
Chinese government.
Mr. Li has a reputation as being more bearish
during financial crises than other Chinese government economists. He has also
used periods of financial stress in China to oppose economic reformers who seek
the opening up of the country’s financial system to greater competition and
more international flows of money, Mr. Hong said.
The document leaked this week said that the
way to prevent a financial panic was to create a separate stabilization fund to
prop up the currency, rather than selling dollars and shrinking the money
supply. Such a move could help insulate China’s economy, because reducing the
money supply makes it harder for families and businesses to borrow for
purchases and investments, from buying an apartment to building a factory.
By contrast, many economic reformers say that
China would benefit from more openness. The closed Chinese financial system
tends to steer money to state-owned enterprises instead of smaller and more
entrepreneurial private sector businesses.
Predictions by the report’s authors aren’t
gospel, said Qian Qimin, the director of wealth management research at Shenwan
Securities, a Shanghai brokerage.
“They consider problems from a theoretical
perspective and they look forward and alert government to the worst
consequences, which is understandable,” he said.
Follow Keith
Bradsher on Twitter: @KeithBradsher.
Ailin Tang
contributed research.