Stock Market Turmoil in China - ZEW Researchers Recommend Extension of Investment Types for Households in China

Following the plunge in stock prices in China and the subsequent slump of the leading index at US stock markets, the German DAX has recently also dropped below the 10,000-point mark. With a view on the economic consequences for China, Professor Michael Schröder and Dr. Oliver Lerbs, financial market experts at the Mannheim Centre for European Economic Research (ZEW), consider the Chinese government responsible for taking approriate action.

"The downturn of the Chinese real estate market has been going on for some time. To make things worse, we are now observing negative asset-price effects from equities, which will have a detrimental impact on private consumption and the overall economic development in China. The Chinese government would not be well-advised to limit their response to curing the symptoms. Instead, they should seize this opportunity and extend the range of legal investment types available to consumers in China.

China still has an immense savings rate. But the spectrum of asset types to invest in is rather small. As a consequence, reallocating funds between domestic asset markets results in strong upturns and downturns. It is too soon to tell whether the recent government measures, an interest rate reduction and the depreciation of the Yuan, will stabilise economic prospects over the medium term."

For more information please contact:

Professor Michael Schröder, Phone +49(0)621/1235-368, E-mail: schroeder@zew.de

Dr. Oliver Lerbs, Phone +49(0)621/1235-147, E-mail: lerbs@zew.de