China is dominating the headlines lately because of the alarming 30% plunge in the local A-share equity market (i.e. shares in mainland China-based companies that are generally only available to Chinese citizens) and the government’s panicked response. This may also have an impact on the global macro and market picture.
Jacobson argues that China is unlikely to suffer a hard landing, mainly because of the country’s financial resources and ability to adjust monetary and fiscal policy. Given improving growth and easy monetary policy in the developed world, the likelihood of a global recession is low. However, risks to China’s growth have increased. Greater uncertainty about the effect of the stock market decline on the real economy and the government’s ability to manage the economic downturn smoothly increases risk to China’s growth.