Business / Economy

China not source of global financial volatility

(Xinhua) Updated: 2015-08-28 09:38

BEIJING - China is not the main cause of the current chaos in the global financial market. Problems in the West are more to blame.

Turmoil has swept financial markets across the globe over the last few weeks, slashing stock prices, jolting the value of major currencies, and beating commodity prices to their lowest points in many years.

Western analysts have attributed the volatility to China's stock market rout, or to China's adjustment of its foreign exchange rate formation mechanism, which led to the yuan's depreciation.

The accusations are unfair and groundless.

It is undeniable that repeated sharp declines in China's stock market since mid-June have shaken investors' confidence, and fears and anxiety have radiated to global bourses.

Apart from some psychological impact, however, Chinese stocks affect the global market little as they are largely isolated from the rest of the world.

Domestic investors are prohibited from directly trading foreign equities, and overseas investors can bet on the Chinese market only via the closely managed Qualified Foreign Institutional Investors and Shanghai-Hong Kong Stock Connect arrangements.

Similarly, the yuan's depreciation has limited influence on global stock and currency markets as the yuan is not fully convertible.

Recent sell-offs in China's stock market dominated by irrational retail investors were just out of panic. Economic fundamentals in the country are stable, with glimmering signs of improvement.

As one of the encouraging results of economic restructuring, the services sector increased 8.4 percent in the first half of 2015 and it accounted for 49.5 percent of China's GDP.

The economy is regaining steam as the government has started new growth engines, including by encouraging more sophisticated equipment manufacturing and the integration of the Internet with traditional industries, by developing regional trade and infrastructure, and by international industrial cooperation.

The International Monetary Fund estimated that China contributed 27.8 percent of global economic growth by last year, higher than the US contribution of 15.3 percent. The institution expects the Chinese figure to grow to 28.5 percent this year.

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