What Happens in China Stays in China — For Now

I have often said that China has a bigger bubble economy than we do.  And like the US in 2008, when it pops the financial repercussions will reverberate around the world. 

Well, it’s popping now, but the worldwide repercussions have been negligible so far.  That’s partly because the Chinese government is very comfortable with massive bailouts and supports for the economy.  But the government has its limits and the largest home building in the country, Evergrande, was recently ordered by a Hong Kong court to liquidate to pay its creditors. 

That’s a big hit to the housing industry which is certainly causing China’s economy to slow down – a lot.  Its stock market is in a long-term decline of over 40% in 3 years.  Consumer spending is slowing.  Foreign investment is drying up.  But do you feel any China shockwaves in the US?  I don’t and I doubt many will come.

The Biggest Growth Engine in the World Has Stopped

China is definitely in trouble and the biggest growth engine of the world economy is gone.  Sure, India can pick up some the slack, but it can’t replace China. 

The big question is: Does it matter to the rest of the world?

Sure, the collapse of the housing bubble and the big slowdown in the Chinese economy will affect some commodities prices.  Part of the reason oil has not risen in price is the lack of Chinese growth.  And Germany’s exports of machinery to China are down, which is part of the reason it is seeing almost no growth this year. 

But outside of some specific areas there is no big worldwide meltdown over China’s problems.  So far, at least, the popping of the Chinese housing bubble has produced a soft landing for the rest of the world.

The Chinese Housing Bubble Collapse Will Hit the US, But Only in the Long Term

Long term, lack of growth will be a contributing factor to investors becoming more worried about a rising US stock market, but it will be only one of many factors.  For now, the primary effects of China’s housing bubble popping are staying within China. 

That’s good for the US economy and stock market.  At this point it looks like the effect of a collapse of the world’s biggest driver of economic growth will not be felt until the US markets start to have their own problems.  Until then, China will likely see even more of an economic slowdown, but what happens in China will likely stay in China.

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