Is the world ready for a Chinese stock market crash?

THE CHINA growth story is one of the greatest economic miracles in history, transforming a communist backwater into the world¡¯s second-biggest economy in just 30 years.

This country of 1.4 billion people now makes up around 15 per cent of global GDP, up from 4 per cent in 1990, after decades of double-digit annual growth rates. 

Last year its economy weighed in at $12.84 trillion (¡ê9.77 trillion), having risen more than 10-fold since the start of the millennium. 

Only the US is bigger at $19.4 trillion.

China cannot be ignored and could prove to be an even more valuable trade partner for the UK after we quit the EU. 

Unfortunately there are also growing signs that the country is struggling to keep its economic show on the road. If it crashes, it could lead to a global pile-up.

DEEP IN DEBT 

China has gone on a borrowing spree since the financial crisis in a bid to keep its economy going, with total debts quadrupling since 2007. 

They now total about 234 per cent of gross GDP, the IMF says, a figure that could hit 300 per cent by 2022. Communist Party bosses are trying to crack down on the country¡¯s bank and non-bank lending, while simultaneously battling to shift its economy away from exports and towards services and consumption. 

This would be tricky at the best of times, but even harder at the tail end of a 10-year global stock market run, and with the added pressure of US President Donald Trump trying to push the country into a trade war. 

Emiel van den Heiligenberg, head of asset allocation at Legal & General Asset Management, is concerned about China¡¯s financial stability as its stock markets fall and its currency, the yuan, weakens: ¡°A Chinese economic hard landing or credit crisis is one of the biggest global risks out there. 

¡°As such, investors need to pay attention.¡± 

SLOW GROWTH 

Analysts have heralded the death of China before, but so far they have been repeatedly proven wrong. 

Its stock market soared 54 per cent last year, according to MSCI, and you can invest in a low-cost index tracking exchange traded fund (ETF) such as iShares MSCI China ETF and SPDR S&P China ETF.

Alternatively, try a broader fund such as Vanguard FTSE Emerging Markets Index ETF, which is a third invested in China.