The Stock Market Crash of China Research Assignment (Essay Sample)

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The Stock Market Crash of China
The stock market of China has faced many challenges in the last few months despite various measures by government officials in Beijing to boost global confidence in the market. The stock market is an important aspect of an economy. It predicts the country’s economic growth mainly in the industry sector and boosts the profits by attracting investors. Stock prices are important when it comes to measuring the total future growth and profits outlook of a company or an economy. Many things have contributed to the recent fall in the stock market in China.
The fall started innocently just as many previous stock markets crashes. At first it was mistaken for the healthy clearing of bubbles but the fall continued to gather momentum. The Economist Magazine reported on August 24th that the stocks had fallen as low as 8.5%, a major single day fall in a period of eight years. Major stocks such as Nikkei index and European bourses recorded an all-time low creating a nervous situation in the economy. One main reason attributed to the fall in the stock market is the devaluation of the Chinese currency, the Yuan, which happened on the 11th of August. The value of a currency is very important, and it affects many sectors of the economy especially imports and exports. Therefore, the devaluation of the Yuan has had a major impact one example being the wiping off of five trillion U.S dollars on global stock prices. Additionally, the devaluation has had a major negative impact on the industries by causing a major slowing of the industrial activities. The slowing of industrial activities reduces the rate of production and exports; a major economic earner for China. Internationally, the slip in the currency has put pressure on the emerging economies that depend on China for exports of their commodities (Katie).
Additionally, the significant transition in the global economy can be attributed to the fall. While the rest of the rich economies are normalizing policies, China is rebalancing them. The rebalance is causing a major wobble in the market hence more strain. In addition to this, the government has not yet provided any interventions to stabilize the market. Government intervention plays a major role in boosting stock markets. It is a major confidence booster to investors who are major players in the stock markets. The government can intervene by cutting bank reserves to stabilize the market and keep investors. Also, the government can open up markets for companies that have made up relevant sales and give the public, proper data to enable them to invest wisely. The accurate data can be useful in valuing different stocks to avoid over-valuing of stock. Over-valuing of stock is a major contributor to the failure of stock markets (Rogowski 1-10). Another reason that resulted in the recent crash is the stock market bubble. A stock market bubble ...