China’s stock market has been taking local investors on a wild ride. Mainland indices dropped sharply over the last week, before rebounding on Thursday.
What does this mean for foreign investors? Probably not too much. The chart above, from Wonkblog’s Matt O’Brien, shows America’s direct exposure to the Chinese economy. Here’s O’Brien on China’s stock market crash:
“What does this mean for the rest of the world? Well, it depends on which of these is more true. If China’s stock swoon is just a classic case of irrational exuberance gone wrong, then there wouldn’t be too much fallout for anybody else. That’s because Beijing doesn’t allow foreigners to invest much in their markets—just 1.5 percent of all shares—so there wouldn’t be a lot of losses outside of China.
But that calculus would change if China’s economy crashes along with its markets. Now it’s important to remember that “crash” is a relative term for China. Its economy is supposed to grow around 7 percent this year, so anything less than 5 percent would push unemployment up enough to feel like a recession. This kind of “hard landing” would hit the commodity countries like Russia or Australia that have been feeding China’s insatiable appetite for raw materials, well, the hardest—although the ripple effects would also reach rich countries like the U.S. that actually sell $100 billion of goods to China each year. That really isn’t all that much in the context of our $16 trillion economy, but if you added up how much other countries being hurt would hurt us as well, it wouldn’t be nothing.”