Sell-Off Continues In Asia's Financial Markets

Transcript

STEVE INSKEEP, HOST:

The Shanghai stock market plunged more than 8 percent today. Major markets are down across Asia, in fact. It's because of concerns about China's economy, and these are the same concerns that helped drive down the Dow Jones Industrial Average here in the United States more than 500 points on Friday. NPR's Frank Langfitt is covering China's economy. He's in Shanghai. Hi, Frank.

FRANK LANGFITT, BYLINE: Good morning, Steve.

INSKEEP: Why is the market falling?

LANGFITT: Well, concern about the economy, just like you were saying. You know, last week we saw manufacturing shrank again - the lowest level in more than six years - and exports last month were down 8 percent. And there's some concerns among economists that the economy here may be weaker than it appears. Today, what happened in Shanghai is investors were hoping that the government would step in and buy shares to support the market. That didn't happen and they were very frustrated. Also, investors have been hoping that the government will loosen up monetary policy, lead to more loans and help kind of boost growth.

INSKEEP: Frank, I want to remind people we heard last week on the program from two American analysts who talked about their concerns about China's economy, that the economy was unbalanced, too much investment, not enough consumer spending, other problems, corruption and so forth. You've been talking with investors where you are in Shanghai. What are they saying?

LANGFITT: Well, these guys are really interesting and this is, I think, very important for Americans to understand this - this is not like the New York Stock Exchange, this market. These are mostly mom-and-pop investors, and, really, investing in this market is not driven by economic fundamentals. It's mostly things - honestly, there's a lot of insider trading and really focused on government policy. So, historically, it's always been volatile, and it's good sometimes to take the Shanghai exchange with a grain of salt. So let me give you an example. People here were kind of angry with the government. They were focused on the government today, not the economy. They said they were losing confidence in the government's ability to halt this slide. We talked to a guy named Guan (ph). He's a retiree. He invests basically just by reading the Communist Party newspapers. So when the government last year was urging people to jump in the market, he poured in. And when they said they pledged to support the market this year, he stayed in. Now he's very frustrated. He's lost about 70 percent of his gains. He's looking for one more rebound and then he, frankly, wants to get out.

INSKEEP: OK, so the stock market in Shanghai may be not the most scientific measure of the economy in China, but there are real concerns about that economy, right?

LANGFITT: There are. Growth is clearly slowing and the question, I think, for everybody is how much. Economists are pretty much, I'd say, there's some divisions. Some think that global markets, particularly the drop we've seen in commodities recently, is kind of an overreaction. But there are problems, as was mentioning earlier - exports, manufacturing. That said, there are bright spots. Housing - it's a huge sector of the economy here. Prices were up in the last three months. Real income and retail are up as well. A bigger problem may be sort of confusion and uncertainty as people look at the economy here and what's driving government decision-making. You know, remember earlier this month there was this devaluation. The government said it was devaluing the currency because it wanted to make it more market-driven. Many believe that, but some investors thought maybe this was to make exports cheaper and to try to prop up the economy. I talked today to Nick Consonery. He's with the Eurasia Group, a political risk and consulting research firm, and he put it like this.

NICK CONSONERY: There is just a huge lack of trust among global investors in our ability to even understand, you know, what's going on with the Chinese economy.

LANGFITT: Now, Chinese policymaking has been fairly opaque over the years. And maybe 15-20 years ago that didn't matter so much. The economy here was small, but now it's the second largest, and more than any country right now, China's driving global growth. So what China's government does and understanding why it does what it does matters more and more to the rest of the world.

INSKEEP: That's NPR's Frank Langfitt in Shanghai. Frank, thanks very much.

LANGFITT: Happy to do it, Steve. Transcript provided by NPR, Copyright NPR.