The Chinese stock market may be in dire straits these days, but that doesn’t mean the sky is falling here in Canada.
In fact, a recent 30 per cent plunge in the value of China’s stock market is expected to have a very limited effect on Canada’s economy, since China’s recent boom and bust trajectory has been isolated from the rest of the world’s markets.
China’s stock market is 99 per cent owned by domestic interests, according Jia Wang, deputy director of the China Institute at the University of Alberta. That means Chinese companies will absorb the brunt of the recent collapse, while other countries are unlikely to suffer any significant short-term fallout.
“It’s largely contained,” Wang told CTV’s Canada AM on Thursday. “The Chinese stock market is fairly isolated from the rest of the world, so the immediate impact on investors will be fairly limited.”
However, the collapse is expected to affect investor confidence on a global scale, she said.
Wang says it’s common practice in China for small business owners to borrow money to invest in the stock market, so many of those investors will be hit hard by the current market troubles. However, the Chinese government has recently cracked down on loaning money to investors, so that practice is unlikely to continue.
Wang says the Chinese government has already taken measures to stem the bleeding, with new restrictions in place to prevent panicked sell-offs. For instance, investors with more than a five per cent share in a company are not allowed to sell their stake for the next six months.
The government is also urging companies to keep trading, although several organizations have ignored that advice by freezing their shares.
Wang says this crash is part of an inevitable rebound in the market, after China saw its stock prices rise dramatically in the first half of the year.
“It has been rising at an almost unsustainable level,” she said.
