While the world managed to overcome the 2008 Financial crisis, began to rise again and started re-evaluating their current economic and bank policies, a powerful economy on the other side of the world stumbled on their continuous growth for the first time after years of evolution, and it was Chinese economy. China’s financial system and markets experienced a setback for a long period of time. Among others, it has suffered stock market crashes, a significantly slower growth that previous years and a notable cuts on their interest rates. This article summarizes some of the factors that provoked both an internal and external battle among rising powers, such as China, and major economic players, like the United States.
To start with the explanation, some facts anticipated in best Forex books have to be stated: China is the second largest economy in the world with an average growth of up to 13 % over the last three decades. Nowadays, China is the biggest holder of the United States debt, since they financed the largest portion of their debt during the 2008 financial crisis, in fact, the United States owes China over 1.2 trillion US dollars..
In spite of the global sensation of prosperity during 2015, China inspired a feeling of unreliability among experienced brokers and investors. As we know, any sign weakness on any economy or an over-spreaded mouth to mouth rumour can lead to a global concern, especially among traders. It can be even worse if we are talking about economies as important as China’s.
The dangers of skepticism in the Forex market have been proven a million times by both, traders and best Forex books writers. A general sensation of distress in the market can decrease the optimism; it can lead to deflation, and in this specific case, it could even produce the U.S. dollar devaluation. Although China’s growth was expected to quickly surpass the United States, some investors are now holding their horses, since the sensation of unsteadiness is now on the Chinese side.
While the US economy is in this huge debt with China, China might be forced to sell their Treasury holdings and US debt faster than they expected. It would bring pressure to traders portfolios, as the US commerce depends on imports, a decreased dollar would increase market prices, which would stabilize the Yuan further.
Recent and extensive trades have been made between China and the U.S.
They now embrace around $590 billions on mutual trade since 2014. Although the United States and China have been historical opponents in terms of diplomacy, their mutual trade has recently flourished. China has been able to manufacture the majority of world’s products, at slashed prices and the fastest pace in less than a decade. However, as suggested by best Forex books writers, oil and commodity prices in China were recently depressed due to the slower course of the Chinese economy, producing a potential deflation spillover to the United States. In addition to this, a possible increase of U.S. interest rates makes it more difficult for exporters to get into the global markets.
On the other hand, the lethargy of the Chinese economy has allowed its currency to trade in more freely way: a fast decline in commodity prices and trading with their rivals had provoked the devaluation of their own currency.
Some people believed that the Chinese government was responsible for the inflated statistics, as if they made it look like they were in better shape than what it actually was. These statistics supposedly created a stock market growing bubble in 2015. The Chinese economic data reports seemed to be in a sandbag, forcing many investors to retreat from the stock market and flood the U.S. real estate market with offers, leading to an important increase in house prices.
Summing up, the general perception on China could be a promoter of the global economic worrisome, since the markets and best Forex books are hesitating about a possible future economic strike. As China is the second largest economy worldwide, rumours tend to spread faster and create doubt. However, the recent difficulties of China are not expected to produce permanent effects on the U.S. or global economy despite their long reach. After all, deflation and inflation are nothing but obstacles to overcome, and the Chinese economy will surely be able to do it, it is in everyone’s best interest.