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China's Stock Crash: $3.5 Trillion Wiped Out, $2.6 Trillion Frozen

Posted by Soulskill on from the all-about-the-maojamins dept.

An anonymous reader writes: The stock market crisis going on in China is notable for the huge numbers involved. $3.5 trillion ($3,500,000,000,000) in value has been wiped out by falling prices, and over a thousand companies have forced a pause in trading. The combined value of all of these companies exceeds $2.6 trillion, and it represents about 40% of the total market capitalization. This follows attempts by the exchanges and the government to instill confidence in trading once more, but investors are still wary. The NY Times has a detailed explanation of how the market got into trouble, and why it's not likely to fix itself overnight: "Put all these pieces together, and here's what we have: a rise in Chinese share prices in the last year that seemed to be driven more by investor psychology than by anything fundamental. It is hard to see how the prices as of a month ago were justified, and easy to see why the sell-off of the last month would occur. That, in turn, implies that Chinese officials are fighting an uphill battle in their policy moves to try to stop the correction, and helps explain why their policy actions have had little effect so far."

16 of 364 comments (clear)

  1. A long time coming... by taiwanjohn · · Score: 4, Insightful

    They've been building up this bubble for years, it was only a matter or time.

    --
    XML is like violence. If it doesn't solve your problem, you're not using enough of it. --AC
    1. Re:A long time coming... by gtall · · Score: 4, Insightful

      Devaluing their currency would help with exports, that's about it. Well, it will make their imports more expensive which might help their domestic industries. However, the world is already awash with Chinese goods, and the Chinese themselves know better than to rely on domestic suppliers given their "supply" problems, i.e., delivering a good that isn't some cheap knockoff or laced with chemicals you'd rather not come in contact with.

      The government has spent the last several years consolidating power and claiming they know how to run a modern kleptocracy. This pokes a hole in their bureaucratic bravado. They have spent a modest amount attempting to prop up the stock market thinking its tanking reflects badly on them. What they fear most is that the Chinese proles might hold them responsible for all the responsibility they claimed while times were good.

      If pushed hard enough, they'll create some foreign crisis to re-rally the people to cover the fact the government has no clothes. They'll have been taking notes from Putin's success in showing just how feckless is the West now that the West is all post-modern and above actually defending its principles.

    2. Re:A long time coming... by njnnja · · Score: 4, Insightful

      The whole "Chinese ghost city" bubble tends to be misunderstood. Sure there are boondoggles in Mongolia but a lot of those ghost cities are basically extensions of boomtowns. And it is tough for people to understand just how big a boomtown in China is; Shenzen is adding almost 300,000 people every year, Tianjin almost 600,000. So the general area of Shenzen needs to build a city the size of Pittsbugh, and Tianjin needs to build a city the size of Boston *every year*. Most of those empty cities were built in anticipation of people relocating from elsewhere and have filled up quickly. And for those that haven't, with building on that massive a scale, if they build residences for an extra 100,000 people in the wrong place here and there it's hardly a sign of foolhardy building that isn't necessary *somewhere*.

    3. Re:A long time coming... by polar+red · · Score: 4, Insightful

      Capitalism only works when you have free markets

      Free markets don't exist. they need an infinite amount of land, resources, perfect and complete information for all players on this market.

      --
      Yes, I'm left. You have a problem with that?
    4. Re:A long time coming... by Mashiki · · Score: 5, Insightful

      Yeah, it'll make junk from Wal-Mart suddenly expensive. I can't say I'm upset about that.

      And there's the guy who doesn't have any idea what happens when the poor and middle class that would be directly impacted in more than one country. Suddenly it costs more for things in the US, Canada, Europe and Asia. Suddenly, everyone but the rich and ultra rich are now struggling, and no longer buying items but rather scraping by after paying for basic necessities. Well tell me what happens when growth in the economy comes to a screeching halt because people aren't buying anything?

      --
      Om, nomnomnom...
    5. Re:A long time coming... by Anonymous Coward · · Score: 5, Insightful

      The growth has halted because nobody is buying anything because nobody in those countries have jobs any more.

      So every time we give corporations tax breaks, and then watch them waltz the jobs offshore, what we're doing is transferring money from the economy to the shareholders.

      It's the lie of globalization being good for anything but corporate profits which is killing our economies. Basically it transfers the value of our jobs to the corporations.

      Kill a CEO, feed a banker to the bears, and throw the lobbyists to the alligators. They're the ones fucking up the economy.

      As long as we stay on this suicidal path of assuming that sucking up to corporations and the wealthy is good for everybody else this will continue.

      The biggest lie perpetuated on mankind is modern economics and free trade. It's really just the corporations and the wealthy ripping us all off.

    6. Re:A long time coming... by bondsbw · · Score: 2, Insightful

      And people want to raise the minimum wage to $15/hour in places that don't have California's cost of living. Same thing will happen there, costs will rise sharply and mostly on goods and services provided to the lower and middle class.

      But those same folks don't see past that poor burger-flipper's immediate paycheck to understand the real consequences of moving market prices on low- and middle-class goods.

      --
      All my liberal friends think I'm a conservative, all my conservative friends think I'm a liberal.
    7. Re:A long time coming... by DerekLyons · · Score: 4, Insightful

      And with a technocratic, authoritarian gov't, they have some leeway to take drastic measure that would be difficult if not impossible in a democracy. It will be interesting* to see how this plays out in the coming days and weeks.

      But with a very large middle class that's become very accustomed to a middle class lifestyle... they lack the leeway to take some drastic measures that a technocratic, authoritarian government could do.

      Seriously, China isn't the same as Soviet era Russia or the current North Korea - where only the Party elite and faithful have wealth, economic influence, and access to goods. They've been liberalizing their economy over the last quarter century (which is one of main reasons for the increasing dominance of cheap Chinese good on world markets), and a lot of people have made a lot of money in the process.

      That's why the government is working so hard to stabilize the market - to keep that segment appeased. They aren't going to be very happy to be reduced to penury.

    8. Re:A long time coming... by taiwanjohn · · Score: 4, Insightful

      Gov't "nationalizes" the building and gives away the apartments to peasants...? If you're the gov't, you don't care if some investor loses his shirt, you want useful stuff that you can give to the masses to keep them from overthrowing you.

      The Chinese gov't doesn't define "assets" the same way as a Western banker would.

      --
      XML is like violence. If it doesn't solve your problem, you're not using enough of it. --AC
    9. Re:A long time coming... by Zalbik · · Score: 4, Insightful

      Here in Alberta, our newest government is planning the same thing over 3 years (minimum wage increase to $15/hr from the current $10.20/hr)

      And yes the cost of some goods will go up.

      The thing is, labor cost is only a part of the cost of goods and services. So while the cost of good and services will go up, it will not go up as much as the increase in income.

      Basically this narrows the gap between the very poor and the middle / upper class. This is a good thing.

      "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Ghandi

  2. Most stock markets ... by gstoddart · · Score: 5, Insightful

    Put all these pieces together, and here's what we have: a rise in Chinese share prices in the last year that seemed to be driven more by investor psychology than by anything fundamental

    Lately this seems to be how stock markets work.

    It has nothing to do with actual value, just the psychotic glee of investors and speculators who envision doubling their money every six months.

    The stock market has become separated from reality, with the people running the giant pyramid scheme feeling entitled to skim off the top with high-frequency trading.

    In the long term, the assumptions used in the stock market seem to be irrational, unsustainable, and pretty much impossible. And corporations are often overvalued based on valuations which is more than the company will ever earn in the next few centuries.

    Stock markets are going to fuck up our economies more than they seem to be helping. Because they stopped having anything to do with fundamentals and sane valuations a VERY long time ago.

    The stock market is a reflection of mass delusion and wishful thinking.

    --
    Lost at C:>. Found at C.
    1. Re: Most stock markets ... by afidel · · Score: 4, Insightful

      Lately? If you believe this is a new phenomenon I have some tulip bulbs I'd like to sell you.

      --
      There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
    2. Re:Most stock markets ... by gstoddart · · Score: 5, Insightful

      Sorry, that's false. The stock market (rather accurately) reflects the earnings and intrinsic values of the underlying companies

      Wow, speaking of delusion and wishful thinking.

      Sorry, but I think you're pretty much full of shit. The market has become very separated from intrinsic values.

      It's what speculators and morons think the company will be worth in the future. Just look at any company going IPO ... it's massively overvalued, unrelated to any actual valuation ... it's priced on the manic glee of people knowing they'll sell the stock for way more than they paid, get the heck out, and leave some other idiot holding the bag.

      So much of the stock market these days is a complete fiction. Some of it is real, yes, but absolutely scary amounts of it are underwritten with bullshit, lies, and false optimism.

      And, in many cases, bullshit ratings by companies paid to give bullshit ratings.

      The financial meltdown in 2008 was caused by companies selling junk debt which had been carefully packaged to appear as if it actually had value .. which was done with the cooperation of the ratings agencies who basically lied to get their cut.

      Wall Street is a fucking Ponzi scheme, not some objective valuation. It's a business run by crooks to take the money from the rubes and move it around, ensuring they can skim off the top each time.

      --
      Lost at C:>. Found at C.
  3. Fear by Etherwalk · · Score: 5, Insightful

    It shot up 150% fro mid-2014 and then corrected way down so that now it's only up about 75%.

    Up about 75% in a year is doing fucking awesome. It's just that the big drop from the ridiculous 150% valuation will let some people sell fear and hurt the economy a bit in the short term.

    Remember the endowment effect--people who made money during the 150% rise are now going to be complaining about how much they've *lost* even though they're still up.

  4. Re:Unregulated capitalism at work. by Vermonter · · Score: 4, Insightful

    What you are seeing is the market correcting itself. Prices are returning to what they should be. The problem is not the crash, the problem is the high prices that exist right before the crash.

  5. valuation vs value by NostalgiaForInfinity · · Score: 5, Insightful

    $3.5 trillion ($3,500,000,000,000) in value has been wiped out by falling prices

    No value has been wiped out. What has been wiped out is valuation. There's a big difference.