CHINA STOCK MARKET CRASH 2015

CHINA China, officially the People's Republic of China (PRC), is a sovereign state in East Asia. Capital - Beijing Largest city - Shanghai Official languages - Standard Chinese Recognised regional languages - Mongolian,Tibetan,Uyghur,Zhuang Area - 95969691 sq. Km. Population - 1.37 Billion (2015 estimates) 1.33 Billion (2010 Census)•GDP (PPP) - $18.976 Trillion (2015 estimates)•GDP (Nominal) - $11.212 Trillion (2015 estimates)•Per capita income (GDP PPP) - $13,801•Per capita income (GDP Nominal) - $8,154•Currency - Renminbi (Yuan)

INTRODUCTION The Chinese stock market crash began with the popping of the stock market bubble on 12 June 2015.A third of the value of A-shares on the Shanghai Stock Exchange was lost within one month of the event. Major aftershocks occurred around 27 July and 24 August's "Black Monday."

CAUSESEnthusiastic individual investors inflated the stock market bubble through mass amounts of investments in stocks often using borrowed money, exceeding the rate of economic growth and profits of the companies they were investing in.

Investors faced margin calls on their stocks and many were forced to sell off shares in droves, precipitating the crash.

CAUSES By 8–9 July 2015, the Shanghai stock market had fallen 30 percent over three weeks as 1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent further losses.

Values of Chinese stock markets continued to drop despite efforts by the government to reduce the fall.

After three stable weeks the Shanghai index fell again on 27 July by 8.5 percent, marking the largest fall since 2007.

EFFECTSMoney magazine estimated that the potential negative impact on the United States stock market may come about when Chinese investors begin to seek out relatively stable U.S. investments in treasuries, stocks, and cash, and further strengthen an already-strong U.S. dollar, thereby raising the prices on U.S. goods and diminishing export profits.

EFFECTS Global companies that relied on the Chinese market suffered from the crash. Stocks that they own were devalued US$4 trillion. For example, French alcoholic beverage company, Rémy Cointreau, and British luxury-goods company, Burberry, saw their shares devalued and declining demand of their imports from Chinese distributors.

Second-quarter sales of American fast food company, Yum! Brands, in China dropped 10 percent, resulting in revenue going under the company's estimate. South African ore mining company, Kumba Iron Ore, eliminated its dividends on 21 July as the 61 percent loss of profit in the first half of the year was announced.

GOVERNMENT RESPONSESThe Chinese government enacted many measures to stem the tide of the crash.Regulators limited short selling under threat of arrest.Large mutual funds and pension funds pledged to buy more stocks.The government stopped initial public offerings. The government also provided cash to brokers to buy shares, backed by central-bank cash. Because the Chinese markets mostly comprise individuals and not institutional funds (80 percent of investors in China are individuals).

GOVERNMENT RESPONSES state-run media continued to persuade its citizens to purchase more stocks.In addition, China Securities Regulatory Commission (CSRC) imposed a six-month ban on stockholders owning more than 5 percent of a company's stock from selling those stocks, resulting in a 6 percent rise in stock markets.Further, around 1,300 total firms, representing 45 percent of the stock market, suspended the trading of stocks starting on 8 July.

GOVERNMENT RESPONSES (CONTD.)Forbes contributor Jesse Colombo contended that the measures undertaken by the Chinese government, along with cutting the interest rate, "allowing the use of property as collateral for margin loans, and encouraging brokerage firms to buy stocks with cash from the People's Bank of China" caused Chinese stocks to begin surging in mid-July.

He argued that in general, however, the outcomes of government intervention as it relates to the crash will, by its nature, be difficult to predict, but saying that in the longer term, the effect may be the development of an even larger bubble through creation of a moral hazard.

GOVERNMENT RESPONSES (CONTD.)On 11 August, two months after the crash, the People's Bank of China devalued the renminbi by 1.86 percent to CN¥6.2298 per US dollar.On 14 August, the central bank devalued it to CN¥6.3975 per US dollar.As of 30 August, the Chinese government arrested 197 people, including a journalist and stock market officials, for "spreading rumours" about the stock market crash and 2015 Tianjin explosions. The crime of spreading rumours carries a three-year jail sentence after its introduction in 2013.The government officials accused "foreign forces" of "intentionally [unsettling] the market" and planned crackdown on them.

BLACK MONDAY & TUESDAY

On 24 August, Shanghai main share index lost 8.49% of its value. As a result, bilions of pounds were lost on international stock markets with some international commentators labeling the day Black Monday.

There were similar losses of over 7% on 25 August causing some commentators to call it Black Tuesday.

EFFECTS ON INDIABlack Monday hit India hard. Really hard.The country’s benchmark index, Sensex, saw its biggest-ever intra-day fall in absolute terms, convulsed by the meltdown in China’s stock market on Aug. 24.A slowdown in the Chinese economy isn’t a terrible event when you consider that Modi is trying to attract manufacturers with his Make in India concept.While investors pull out funds parked in China and other emerging economies, India still is an attractive market. And the fall in the equity markets is temporary.

EFFECTS ON INDIAA substantial part of Modi’s avowed plan to kick-start the Indian economy was by way of big-bang reforms. These include the controversial land acquisition bill and the long-awaited goods and services tax (GST), both of which are still stuck in a limbo.If the Modi government had managed to get these key reforms off the ground, India would perhaps look a little more attractive.The biggest losers from the China crisis could be the Modi government’s ambitious disinvestment plans, and the much-needed capital infusion in public sector banks.

REFERENCES https://en.wikipedia.org/wiki/2015_Chinese_stock_market_crash http://www.economist.com/news/business-and-finance/21662092-china-sneezing-rest-world-rightly-nervous-causes-and-consequences-chinas http://qz.com/488135/what-chinas-market-crash-means-for-indias-economy/ Paul J. Lim. "How China's Stock Market Crash Affects You". MONEY.com. Gough, Neil (28 July 2015). "Chinese Shares Tumble Again". The New York Times. https://en.wikipedia.org/wiki/Goods_and_Services_Tax_%28India%29_Bill