China is the world’s biggest economy in purchasing power terms but its secretive political system, unreliable statistics and restrictions on foreign investment make it one of the least-understood markets among global investors.
This fact was on display over the summer as global sentiment on China swung from greed to fear in the space of just a few months. The bursting of an equity bubble was compounded by Beijing’s decision in early August to change the way it sets its exchange rate — a move many investors interpreted as a sign of panic and incompetence on the part of Chinese policymakers.
The resulting global sell-off and currency market turmoil was largely based on a sudden realisation that the Chinese economy has slowed a lot, and is likely to slow even more in the future.