Economics Professor Provides Insights on China’s Market
Maxwell School Economics Professor Mary E. Lovely, who studies the Chinese economy and China’s economic growth, provides some insight into China’s market volatility.
“If stock values do not rebound, households may perceive a permanent decline in wealth and slow down the growth in household expenditure. Chinese households are notorious savers—they save about half of their income. The macroeconomic rebalancing that China is attempting—reducing reliance on export markets as a source of growth and increasing reliance on domestic consumption—requires households to save less and spend more. The stock decline may make this rebalancing more difficult.
“External markets cannot be expected to increase their absorption of Chinese goods at the rate they did over the past decade. Consequently, Chinese economic growth may slow down further, below the growth of 7 to 7.5 percent that was already a slower pace than the past.
“Given that, however, the vast share of Chinese household wealth has not been placed in the stock market. Household holdings of real estate, for example, are far larger. The impact on Chinese domestic spending may be less dire than feared. If economic growth slows further in China, however, there will be an impact on commodity exporting countries, such as Australia, and on capital equipment exporters, such as Germany.
“The impact on the U.S. market may be positive as investors turn to safe havens. Chinese shares traded outside the mainland have not fallen that far, and only an estimated 4 percent of the Chinese market is held by foreign investors. The vast majority of losses will be felt by Chinese citizens, not foreign citizens.”
Professor Lovely, who was a co-editor of the China Economic Review and recently returned from presenting at a conference in China, is chair of the International Relations Program and a Melvin A. Eggers Faculty Scholar.
Professor Lovely’s current research programs investigate the consequences of changing ownership structures in Chinese domestic enterprises, the role of foreign ownership and processing trade in the pollution intensity of Chinese industries, and the link between wages and access to domestic and foreign markets.
She can be reached at email@example.com.