Let’s face it, the People’s Republic of China may have cut rates to win back investments – rather, investors. With the Chinese Yuan recently being devalued and boom towns becoming bust towns, China may have overestimated the value of its sizable economy.
As a result, the world has reacted to the movement of one of its most valuable indicators of contributions as a global economy, which is its stock exchange index. China’s stock exchange has showcased the volume of its stocks and bonds and various types of investments, including that of production, as well as goods and services and that of global trade.
Indeed, in a world of capitalism, the stock exchange index is one of the most important aspects of the market system pertaining to the buying, trading, and selling of stocks and bonds. Yet, the whole concept is a bit of a gamble due to the totality of the market system, including that of consumer behavior.
Although some post-industrial nations continue to encourage consumerism, other nations are merely becoming emerging markets. However, the latter type of markets are usually considered the riskiest and most volatile; therefore, investors must consult with various professionals on whether he or she should do business in those types of economies. As history has shown, though, consumerism tends to do rather well in developing nations due to new opportunities arising from various kinds of investing, including that of capital, corporate, real estate, and business services.
It appears, however, that China may have a busted, developing city. To start, Shenfu New Town, located close to Shenyang, appears to have lost a lot of workforce, while those who reportedly decide to stay within city range face bleak situations, according to The Washington Post.
Although predictive measures of a new town may not reach certain goals, this does not appear to be the total cause of the Yuan losing some of its value. Investments, after all, carry risk and currency is one of the most promising investments as it is often backed by its nation’s treasury system. How then did the Yuan get to be devalued?
While oil is another promising investment, it also recently lost value. Traditional stockbrokers appear to push it since it is still in demand in many areas, but various places seem to be implementing and utilizing alternative fuels and energy. Not only that, cars and factories appear not to be so reliable on oil in recent times as well.
Nonetheless, part of the reason the Yuan has fallen may also be due to China’s exports measures. Since the devaluation dropped by about two percent, critics indicate it may have been a ploy to push investors from foreign lands to import more products from China. This may be a smart move, but may yield little results if other global economies have also slowed in consumer spending.
To start, Greece was a huge issue not long ago, and certain emerging markets are showing little signs of maintaining development, such as Brazil. To put it so bluntly, times are tough and labor may not be as valued as it should be. After all, laborers from various countries are competing with machine takeovers, while post-industrial nations appear to be avoiding the issue of raising the minimum level of wages dictated by certain governments.
China is a Communist nation, though, and some of its people may not be accustomed to change dealing with investment deals and development. For certain areas to be placed in the middle of a so-called freeway of buildings, roads, and stores, it can be quite a culture shock. Even so, the fact that China recently cut rates and reserve requirements of banks in order to win back investments shows the nation is not considering the real scope of demand affiliated with local and global economies.
Whether the devaluation of the Yuan is the result of a stimulus program for exportation, the result of low demand for real estate, production and labor, or simply, the result in loss of overall value of currency, the end result has caused a widespread effect on global economies. While the Shanghai Composite Index has lost about 22 percent of its volume in the last three days, according to the New York Times, other nations have felt a ripple which amounted to a loss of around four to five percent per day, give or take. In fact, the Dow Jones may have lost a total of around 11 percent in the last six days.
While China is the most populated nation in the world and has the second largest global economy, it seems the goal of transforming various areas into bustling industrial cities was not as promising as investors may have thought. In fact, with China being one of the heaviest polluters of emissions, which includes that from oil and steel, it seems the nation will have to reconsider its investment planning, particularly that related to labor, production, real estate, and exports.
Although China is cutting rates and dropping reserve requirements to win back investments, the U.S. is busy trying to figure out whether its national bank will raise interest rates next month. Although China’s situation may be an indicator of things to come, the Feds will ultimately have to decide if their own American economy is strong enough to withstand possible drops in the market as a result. This may require that they take a closer look at the next jobs report, consumer spending report, and perhaps even, distribution of wealth.
Opinion by Liz Pimentel
Wash. Post – In China, A Ghost Town Points to Shifting Fortunes
NYT – A Plunge in China Rattles Markets Across the Globe
NYT – China Cuts Interest Rates as Concerns Mount Over Economy
Photo courtesy of NASA