Until now, most of the action has been taking place overseas, far away from American shores. But in an interconnected global economy and financial system, the China crisis is already impacting the United States and will soon impact you too—both positively and negatively.
Financial markets reacted first. China’s stock market is down 22 percent this year. Japan is down 14 percent, Germany 16 percent, all of them extending their slumps from 2015.
Relatively speaking, the United States is doing well—the S&P 500 is only down 9.3 percent. But even America won’t be able to save itself from the contagion of a Chinese economy on the edge of the abyss.
Growth in China has slowed to a number much lower than the official 6.9 percent. Capital is leaving the country by the hundreds of billions of dollars every month, the stock market is crashing, and the currency depreciating.
The Ghost of 1997
“There are worries about a rerun of [the 1997 Asian financial crisis] a series of competitive devaluations,” said Sherle Schwenninger, director of the World Economic Roundtable at the think tank New America Foundation.
Whether competitive or not, almost all emerging market currencies from the South African rand to the Turkish lira and the Chinese renminbi are falling against the dollar, exacerbating a problem that started in China in late 2014.
Schwenninger said that if emerging market currencies fall in value, dollar debt increases in value, which makes it harder for companies and countries to pay it back. And it’s not just China that has lots of it, $870 billion according to the Bank of International Settlements.
