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China’s Stock Market and Its Effects
In today’s world financial assets are very valuable. A financial asset can be described as a liquid asset that gets its value from ownership claim. Examples of financial assets, according to James Chen, include: cash, stocks, bonds, mutual funds, and bank deposits (Chen). Imagine not having to work as hard but still being able to bring in a hefty annual income. The easiest way one can multiply their assets is to invest in the stock market. Nowadays there are many major stock exchanges one can invest in. While your average investor wouldn’t look past the United States stock exchanges, I think that investing in China’s market can make for an incredible asset to anyone. It is very important that everyone knows about China’s market and even more important if they’re thinking of investing in China’s market.
China is projected to pass the U.S. economy in the next decade. Not so long ago, China relied on bicycles as their main source of getting around and now China produces the most cars of any country. How did this happen? Well, their socialistic government has allowed the economy to develop capitalistic behaviors like consumer choice. This example of capitalism is very important to the economy. Consumer choice is why the U.S. market has boomed so much in the last year. Consumer choice allows citizens to buy whatever they want, for instance, many people want iPhones which makes apple a top company. Without consumer choice, companies could not gain capital. With China being fresh into consumer choice means big returns and big companies from China will start to emerge making them an ideal company to invest in. By adding consumer choice, China’s government really made a step in the right direction.
Another reason why their economy is growing is “because of the government’s planned urbanization of the country and massive investment in infrastructure, including commercial and residential skyscrapers, highways, airports, mass transit, and high-speed rail, among other components” (Bowman, 1). Urbanization is essential for any country. Just like back in 753 to 509 BC when Augustus Caesar built Rome. It brought everyone together and everyone could contribute to the economy. To build these massive infrastructures, it takes people to build them which creates jobs and always helps an economy. A city can be a center to where everyone can meet and where many businesses can grow. Like having large shopping centers and restaurants that many people occupy. A city is a symbol of human civilization; it is the people’s economic and political center.
Also, exotic infrastructures can lead to tourism. Tourism can create new jobs. It can help trade, income, and entrepreneurship – especially in small business (Chase). These small businesses can even gain humongous amounts of capital making them prime time investments. With that being said tourism can help a country’s gross domestic product (GDP) because tourists will buy stuff in that country.
China’s GDP growth rate is substantially bigger than the United States’ GDP growth rate. China’s GDP rate is forecasted to be at 6.1% for 2019 while the US’s economy is only suspected to grow 2.2% for the year (Lee, 1; Amadeo, 1). A good economy is a definite prerequisite for a good market, obviously, without a growing economy, you cannot have a rising stock market. For instance, when the GDP of a country is high, firms will be able to give out more jobs because they can afford to pay higher salaries. This can lead to consumers spending more money on products and utilities because more people will have sustainable jobs and will buy more products. This is the basic principle of a market. You need people to make money and then spend that money to keep the economy moving. Another thing people will spend money on when they have a sustainable income is buying shares of stocks in the market. Stocks are a basic supply and demand just like an ordinary product. If people want more oranges, then the price of the orange will increase. In change, if more people want to buy market shares, the market price of that share will go up. On the other end, if more people want to sell shares, the price will decrease. But, without the principle of a growing economy (a positive and high GDP rate) none of this can happen. China’s market is essentially better than the United States’ market right now because its economy is evolving faster and more consumers are more inclined to purchase products. A good example of this is in a younger demographic in China.
The world’s new generation, Generation Z (anyone born after 2000), spends tons of money online or value-added service revenue, but China’s generation is special. China’s Generation Z has the biggest kink to purchasing things online such as virtual gifts, virtual money for in-game currency. Just like supply and demand, more teenagers want video games and this can cause the price of new games to skyrocket. People will also be more willing to purchase these high-priced games because everyone wants them. This is also good for the economy because businesses can find ways to target this audience and make large amounts of revenue. It is really no wonder why China’s biggest businesses are social media companies, because of the fact that they mainly target Generation Z. A very big social media platform from China that everyone enjoys is Tik-Tok. Tik-Tok is owned by ByteDance, who is based in Beijing, China and they are a privately traded company which means no one can purchase a share of their stock. However, they are the highest valued private company valued at $75 billion (Zhong, 1). With a value that high means, they could go for sure go public soon which is great for an investor. Another great example of a big company in China is Tencent. Tencent has many big holdings in many popular games such as Fortnite and Clash of Clans, which many of my friends have spent tons of money on. Finally, another big dog is called We Chat. We Chat is basically a messaging system having 1 billion monthly active users. In summary, the USA hasn’t really developed that big of entertainment-related stocks, which is why China is already a step above the US.
In the article ‘90 Minutes a Day, Until 10 P.M.: China Sets Rules for Young Gamers China’s’ by Javier C. Hernandez and Albee Zhang, China’s largest gaming generates $33 billion in annual revenue drawing millions of users. The Chinese government has recently released new rules helping people with video game addictions, mainly younger people. These laws include of video games after 10 p.m. and no more than an hour and a half of gaming on weekdays. Another regulation announced by the National Press and Publication Administration bans users younger than 18 from playing video games between 10 p.m. and 8 a.m. This is planned because the government believes it is responsible for poor academic performance. But how does this affect the market? With Tencent Games being a big holder already it could possibly decrease the market value. Also, with the new regulations of keeping things like virtual items at only $57 a month. These regulations can cause protests from these big video game companies, consumers, and even shareholders (Zhang and Hernandez). Although it is what it is in China and they have to comply with the Government. With that being said their socialist government controls the market and can make changes like this that will affect the economy.
China’s government plays a huge role in their communistic economic system, unlike the United States’ capitalistic economic system. They have some policies similar to the United States despite having unlimited competition between privately owned businesses, they have adopted, the rules that govern a public company in China are different than those in the U.S. For instance, the Shanghai Composite Index is the biggest stock index in China’s market. It is down 40% over the past 10 years but this is because of their government. The Chinese government is very corrupt, which could ruin the Shanghai Composite Index, which is essentially the companies below it. Corruption in China presents business operating or planning to invest in the country with high risks. This can make investing in China’s market very hard because it is hard to tell what is doing well. The government is rigging the market so no one can really tell what is going on. The Chinese government led an anti-corruption campaign that led to many arrests and still influences the business environment. I think that even though China is in a terrible position with its government they can overcome this by just focusing on their strengths including their intellectual abilities.
A big topic that has been all over the news recently is the trade wars between the US and China. In the article, ‘Here Are 5 Cases Where the U.S. Says Chinese Companies and Workers Stole American Trade Secrets” by Paul Wiseman and Michael Liedtke. Back in 2017, The U.S. government started looking at the policies for China’s trade and concluded that the goods coming in from the U.S. to China compared to the goods coming in from China to the U.S was too great. The U.S. then imposed $250 billion in tariffs on China but in return, China issued its own tariffs with $110 billion U.S. imports. This backfires on both countries because companies would mainly have to pay for these extra taxes which would then cause them to upcharge their products. Consumers would then curb their spending and start buying different products. For example, China produces many Apple products and tariffs would cause consumers to stop buying Apple products hurting one of the biggest technology companies in America. Chinese consumers could also suffer in the same way as U.S. consumers because we could imply tariffs to their products which would up the prices for their consumers too. It’s a basic lose-lose scenario for everyone. The trade wars also affect the global economy as well because consumers from Europe to consumers in Africa could want these products as well (Wiseman and Liedtke).
Some can say that China is cheating. They are ripping off U.S companies (like Apple) and producing their own technology to sell for their own good (Wiseman and Liedtke, 1). Just like the United States has Apple, China has its tech giant company called Huawei. Federal prosecutors think that Huawei stole trade secrets from U.S. cell phone company T-Mobile and offered bonuses to employees who managed to swipe technology from other companies (Wiseman, 3). This is a very big problem because it is illegal in some countries. With intellectual property rules in the United States, citizens can’t just go around stealing others’ technology and selling it. Because of this, The Trump Administration proposed to China in order to end the trade war they want China to buy more American products and even tighten up their intellectual property rules. As of right now, China will not come through with the Trump administration’s proposal because just like us they want what is best for their country.
The trade wars also affect the stock market as well because prices rise for companies and fewer consumers will buy their products which mean no revenue for these companies. Also, some investors are scared of their own stockholdings in the market because the trade wars can have a huge impact on the market if it is not resolved soon. However, some companies have been seeing big returns in the last quarter during the midst of the war, the biggest stock exchange (Dow Jones) is up 20% in the last year. Right now, some stockholders are scared it is very much easier to get a bargain on some stocks and investors should be on the lookout for these. This happens because many investors are scared and will sell their shares. A company will then be at a low value which makes it a gold mine.
Financial assets can be very beneficial but it is important that investors know the market before they think about buying shares in the market. China’s government affects the stock market heavily which makes it important to be knowledgeable about recent news in China to know if new regulations can affect your investment. China’s market is on the rise with the new government policies and actually contributing to helping than regulating everything. With China’s GDP growth rate as high as it is, it helps the employment which overall helps their economy as a whole through consumer choice. It is very important that all citizens are informed about China and its stock market because it will affect our world in the future. With trade wars on the rise, there is a possibility that the United States economy could have a recession or even a Great Depression all over again.
References
- ANTONS, CHRISTOPH, and KUI HUA WANG. “Well-Known Trade Marks, Foreign Investment and Local Industry: A Comparison of China and Indonesia.” Deakin Law Review, vol. 20, no. 2, July 2015, pp. 185–219. EBSCOhost, doi:10.21153/dlr2015vol20no2art519.
- Amadeo, Kimberly. “What Will the Economy Do in 2019 and beyond?”. The Balance, The Balance, 5 Nov. 2019, www.thebalance.com/us-economic-outlook-3305669.
- Bowman, Jeremy. “How to Invest in China Stocks.” The Motley Fool, The Motley Fool, 3 Aug. 2019, www.fool.com/investing/how-to-invest-in-china-stocks.aspx.
- Chen, James. “The Money You Can’t See: Financial Assets.” Investopedia, Investopedia, 25 Nov. 2019, www.investopedia.com/terms/f/financialasset.asp.
- Gad, Sham. “Investing In China.” Investopedia, Investopedia, 18 Nov. 2019, www.investopedia.com/articles/07/invest_china.asp.
- John, Chase. “Importance of Urbanization.” UKEssays.com, www.ukessays.com/essays/economics/urbanization-is-an-important-factor-in-modernization-economics-essay.php.
- Lee, Yen Nee. “China’s Economic Growth Could Fall below 6% in 2020, Says the IMF.” CNBC, CNBC, 21 Oct. 2019, www.cnbc.com/2019/10/21/chinas-economic-growth-could-fall-below-6percent-in-2020-says-the-imf.html.
- “NATO / OTAN.” What Is NATO? www.nato.int/nato-welcome/index.html.
- Stephen, Craig. “Here’s Why Everyone Needs to Care about China’s Stock Market.” MarketWatch, 8 Jan. 2016, www.marketwatch.com/story/why-chinas-stock-market-hurts-so-much-2016-01-08.
- “Why China’s Tech-Savvy Millennials Are Quitting WeChat.” South China Morning Post, 24 July 2018, www.scmp.com/news/china/society/article/2156297/how-growing-privacy-fears-china-are-driving-wechat-users-away.
- Wiseman, Paul, and Michael Liedtke. “Here Are 5 Cases Where the U.S. Says Chinese Companies and Workers Stole American Trade Secrets.” Chicagotribune.com, Chicago Tribune, 21 Feb. 2019, www.chicagotribune.com/business/ct-biz-us-china-trade-war-ip-theft-20190221-story.html.
- Zhong, Raymond. “Bytedance of China Eyes $75 Billion Valuation, Joining Start-Up Giants.” The New York Times, The New York Times, 28 Sept. 2018, www.nytimes.com/2018/09/28/technology/bytedance-fundraising-toutiao-tiktok.html.
- Hernández, Javier C., and Albee Zhang. “90 Minutes a Day, until 10 P.M.: China Sets Rules for Young Gamers.” The New York Times, The New York Times, 6 Nov. 2019, www.nytimes.com/2019/11/06/business/china-video-game-ban-young.html
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