Stock markets not good barometers of economy COTTON LIKE FIBER

Of course, the increase in the rates of interest in the US and elsewhere in 2018 also affected stock prices negatively. This year, the Chinese stock markets first fell and then began to rise, buoyed by hopes that the China-US trade talks would lead to an agreement. More recently, they have fallen again, reflecting the progress or lack thereof of the trade negotiations. The S&P 500 Index also experienced similar volatility.

But the Chinese stock market indexes are not good barometers of the state of China's real economy. There is essentially no correlation between the rate of growth of China's real GDP and the rate of growth of the Chinese stock market price indexes, because more than 80 percent of Chinese mainland investors are individual retail investors with an average holding period of less than 20 trading days.

What is the damage to China's real economy? The exports of goods to the US in 2018 constituted 3.6 percent of China's GDP. The total value-added attributable to these exports would be about 66 percent, resulting in an estimated maximum loss of 2.4 percent (3.6 percent multiplied by 0.66) of GDP, assuming that all exports to the US are halted. If, as is more likely, half of Chinese exports of goods to the US is halted, the maximum loss would be 1.2 percent, which is quite manageable for China.

My calculation does not take into account the mitigating effects of any possible economic stimulus measures the Chinese government may take. Nor does it take into account the possibility of substitution of destinations for Chinese exports. For example, instead of shipping from a factory in China, a factory owner can ship goods to the US from another factory he or she owns, say, in Vietnam, and ship goods to Japan from his/her factory in China. Which means the factory owner's total exports from China will not decrease despite the US' higher tariffs.