These are the causes of the China crash!

Last Updated: 13. Februar 2024By

The stock markets in China are currently in crash mode. Panic is spreading among the values of the world’s second largest economy, which are traditionally closely intertwined with the DAX and MDAX.

Therefore, I have compiled the most important negative developments in China for you today. Here everything comes together. Let’s get started:

1. The hopes for a strong recovery of the Chinese economy after the end of the zero-Covid policy have been shattered. China’s economy has still not recovered to pre-pandemic levels and is not expected to do so until 2024. China has maneuvered itself into a dead end with its completely exaggerated COVID measures, from which it is only slowly emerging even after the end of the restrictions. The damage to the economy is persistent and deep-seated.

2. The aging demographics are causing domestic demand to continue to decline. Older buyers mean less consumption. This problem is further exacerbated by high youth unemployment, which also hinders young people from consuming enough.

3. Foreign demand for Chinese products is decreasing. One reason for this is the significantly increased prices of former „cheap goods“. The same quality can now be obtained more cheaply in other low-wage countries, meaning that China’s competitiveness has decreased.

Another reason for the lower foreign demand is the desired „decoupling“ of the West, meaning a reduction in dependence on supply chains from unfriendly states. Especially since access to the Chinese market is often tied to the obligation of „technology transfers“. China itself also wants to become more independent from the West. But the West should still remain dependent on China’s goods. This cannot work!

4. According to the global economic research organization Conference Board, China’s economy grew by +5.1% last year. However, in 2024, growth is expected to fall to only +4.1%. This is an unusually low growth rate for China, which is expected to continue to decline.

5. The real estate crisis with major bankruptcies of corporate empires such as Evergrande and Country Garden last year is not yet over. The causes of the crisis have not been addressed, but are apparently being swept under the rug. The interconnections between companies will likely lead to further major bankruptcies, potentially even creating a dangerous domino effect or a new financial crisis.

6. China is in a downturn with deflation, in which company profits continue to erode due to a vicious cycle of weak demand and falling prices. This development is poison for stock prices.

Downturn, isolation, financial crisis – is China about to hit rock bottom? I would roughly summarize the development as follows: China’s communist government has made serious strategic mistakes (real estate bubble, debt, overregulation, market isolation, technology theft, population policy, lockdowns, etc.). The strategy to make China less dependent on the rest of the world, but at the same time make the world more dependent on China, has completely backfired.

The result is that growth is permanently at risk and the country is caught in a deadly deflation spiral. This deflation is causing company profits to shrink and stock prices to plummet.

You may be thinking, „So what, how does this concern me? I don’t have any Chinese stocks.“ But it’s not that simple. China is one of the most important trading partners for both Germany and the United States. Therefore, in my next posts, I will clarify for you how a crash in China could affect the stock markets there.