Global financial markets were in turmoil this week after China’s stock market suffered its biggest one-day plunge since 2007. The crisis has been dubbed “Black Monday”.
Newspaper headlines the following day concentrated on markets that had bounced back.
But the instability isn’t over. It has sent a shudder through the global economy—and exposes the lies about its recovery.
In China many ordinary people were encouraged to buy shares, sometimes with borrowed money. They have watched as their investments were wiped out.
Politicians and pundits across the world tried to hold back the panic. They argued that other countries could ride out a problem that was simply “made in China”.
But the Chinese collapse is already hitting the Australian, Brazilian Indonesian, Japanese and South Korean economies.
That’s because China is the second biggest economy in the world and the second biggest importer of goods and commercial services.
This huge market shows just why China’s crisis is impacting on other countries, including Britain, that rely on selling exports.
Tory chancellor George Osborne could only say he was “reasonably confident” that it wouldn’t have a big impact in Britain and the rest of Europe.
But over £70 billion was wiped off the value of shares on the London Stock Exchange on Monday of this week.
China is Britain’s seventh biggest export market.
Its seemingly never-ending expansion led some economists to argue that it was an exception to a system riven with crisis. They said it could drag the rest of the world economy out of recession.
But now China’s economy is faltering. It has shown that it’s suffering from the same crisis of profitability as every other capitalist economy is today.
Despite devaluing its currency earlier this month, which should make its exports cheaper, the slowdown is accelerating.
China’s financial markets have rocketed in recent years. The main index of the Shanghai stock market doubled in the 12 months to June.
Many commentators blame specific issues shaping the Chinese markets.
For instance, there is a limit on how many stocks can be owned by foreign investors.
So Chinese investors are described as “inexperienced” and more likely to panic and sell when under pressure. But the small-time Chinese investors, who have lost heavily, are a minority of the total.
Bankers speculating on borrowed money in order to make a quick profit is a global phenomenon—and China is no exception.
It’s part of what brought down financial institutions in the 2008 crash.
The politicians and bosses responded to the last crash by making sure they kept the banking sector afloat at all costs.
Bailouts and “quantitative easing”—printing money—have poured cash into financial markets already awash with it. This created the illusion of economic recovery because the stock markets surged.
But the recovery isn’t based on real wealth—and when those speculative bubbles burst it can cause a fresh crisis.
In the West, investment hasn’t gone into expanding production. So economic growth has remained weak.
And at the same time governments and bosses have imposed increasingly harsh austerity on working class people.
So this latest volatility is not a Chinese, US or British problem.
It is rooted in the way the whole capitalist system is set up and how governments responded to the crisis that broke out in 2008.