The Stock Market Is Only One Chapter Of The Chinese Story

The Chinese stock market has been generating plenty of attention over the last month. With a historic 30 percent plummet at the beginning of July and another large correction several weeks later, many have suggested that the country is undergoing its version of the Great Depression. But it's easy to forget that China's stock market is not like the United States' -- that a 30 percent drop in the Shanghai Composite is much different from a 30 percent drop in the S&P 500. First of all, Chinese companies are hardly exposed to to the equities market at all. Only 5 percent (http://money.cnn.com/2015/07/29/investing/china-stock-market-crash/) of private sector fundraising happens on trading floors. Furthermore, trading in China is dominated by retail investors, whose activities often don't reflect broad economic and corporate trends. So before potentially crying wolf about a legitimate collapse of the world's largest economy, it is important to realize that equities are only part of the story in China. Bonds The current yield on 10-year Chinese government bonds has been in decline (http://www.investing.com/rates-bonds/china-10-year-bond-yield) all month, with a sharp descent having begun about a week ago. Lower bond yields indicate that players in the market believe that interest rates will rise -- in other words, they anticipate accelerated inflation and economic growth. Real Estate Chines real estate is showing signs of life, even as onlookers have been speculating for months (http://www.cbsnews.com/news/china-real-estate-bubble-lesley-stahl-60-minutes/) about a likely bubble. Interest rate cuts by the People's Bank of China have apparently drawn homebuyers back into the market, at least in some of the country's largest metropolises (http://asia.nikkei.com/politics-economy/economy/china-s-housing-market-on-divergent-paths). The turnaround has been so rapid that officials in Tongzhou, a district in east Beijing, have warned real estate moguls to exercise caution lest prices accelerate too fast. Prices of newly built residential structures rose in 27 of 70 midsize to large cities in June, according to the National Bureau of Statistics -- seven more than the previous month. But to be fair, many believe that the spike in real estate is simply the product of Chinese citizens transferring their savings away from an ailing equities market. "There are fairly limited formal investment options in China, so people crowd into the ones that are available ... [and] that does fuel speculative bubbles," Brian Jackson, a China economist with IHS Global Insight, told CNN Money (http://money.cnn.com/2015/07/28/investing/china-bubble-stock-market/). Manufacturing Manufacturing typically constitutes slightly more than 30 percent of Chinese GDP in any given year, and it hasn't been looking good as of late. The country's industrial sector contracted even more than anticipated during July. The Caixin PMI fell to 48.2 this month, well below the 49.7 Reuters forecast and hitting its lowest mark in over a year. Many have posited that the decline in manufacturing is tied to the equities as well. But even if that is the case, the recent PMI figure indicates that the ramifications of a plummeting stock market may extend well beyond the trading floors of Shanghai. Commodities The global commodities downturn has been well documented, and China is no exception to the trend. The country's gold prices have been in decline since early June (http://goldprice.org/gold-price-china.html). Oil also dove to a four-month low on Monday, with the Brent Crude nearing $50. Many are anticipating decreased demand from the world's largest energy producer. So while Chinese stocks have clearly been struggling, the the country's other markets are sending signals of their own. Is the Chinese economy really crumbling? Maybe. But whatever the answer may be, it certainly can't be derived by looking at the Shanghai Composite alone.