A single tweet from Houston Rockets General Manager Daryl Morey managed to start a major international controversy that has alienated the National Basketball Association (NBA) from almost all of China. On October 4, 2019, Morey tweeted an image that featured the caption “Fight for Freedom. Stand with Hong Kong”, publicly announcing his support for Hong Kong protestors over mainland China. Soon after Morey’s public statement, the Chinese government called for the NBA to remove him from his position and publicly support the Chinese government’s rule.

With CNBC noting as recently as last November that the NBA has become the most popular sports league in China, the NBA was in a particularly difficult position. Many of the most popular current and former athletes in the NBA, including Stephen Curry, Joel Embiid, and Kobe Bryant, have been traveling across China for years to promote their partnerships with shoe companies. Other former NBA athletes such as Tracy McGrady and Stephen Marbury have found significant success through playing in China’s biggest basketball league, the Chinese Basketball Association (CBA), after their NBA careers came to a close. One of the biggest recent stars for the Shanghai Sharks organization, American player Jimmer Fredette, was able to use his positioning as a superstar in the CBA to briefly return to the NBA and later receive a major two-year contract with Greek organization Panathinaikos of the EuroLeague. The NBA even started a series known as the “China Games” in 2004, and as of 2018 they had organized 26 different preseason games for American teams to play in China in locations such as Beijing, Macau, and Taipei. Through this variety of partnerships, the NBA was able to promote its own international growth, the growth of the CBA, and the massive increase in popularity of American basketball apparel across China.

Given the NBA’s increased reliance on China as a flourishing market, some NBA figures did not receive Morey’s comment kindly. Within minutes of the publication of Morey’s tweet, Houston Rockets owner Tilman Fertitta heavily criticized his general manager, stating that Morey did “not speak for the Houston Rockets organization,” and pushed the idea that the Rockets would express no political viewpoints on the matter. The Rockets have historically been one of the most popular NBA teams in China, as former Rockets star center and Chinese native Yao Ming became a celebrity in the country after his dominant play in the U.S.. In addition, Ming currently serves as the president for the CBA, and much of his work is closely connected to the Chinese government.

Through Morey’s statement, not only did the Rockets risk losing their key connections to both their legions of Chinese fans and their relationship with their former star player, but also alienating many of their domestic fans. With many U.S. politicians attempting to pass the Hong Kong Human Rights and Democracy Act that would support the Hong Kong protestors’ goals, general support for the Hong Kong protestors in the United States has outweighed support of the Chinese government. While Fertitta’s declaration momentarily helped salvage relations between the Rockets and China, his comments also hurt domestic fan support.

In addition to Fertitta’s negative comments, Los Angeles Lakers superstar LeBron James described Morey’s tweet as “misinformed or not really educated” on what was going on between Hong Kong and China. LeBron has increased his visits to China to advertise his shoe brands with Nike, and his comments on the matter directly contradicted his previous views as an advocate for free speech among athletes. Most non-Chinese writers and fans were heavily critical of LeBron’s comments, perceiving him to be valuing his business deals over his character.

NBA Commissioner Adam Silver, however, did not choose to follow suit with Fertitta and LeBron, and he publicly stated that the NBA would not be apologizing to China for Morey’s decision to speak out against Hong Kong soon after Fertitta’s comments. In addition, the NBA also promised not to fire Morey for his use of freedom of speech. Many other companies that have dealt with interactions with the Chinese government before have succumbed to pressure to change aspects of their business: Apple removed the Taiwanese flag emoji from all of its products’ keyboards, Hollywood movies have significantly censored films shown in China that have portrayed Chinese officials in a negative light, and Mercedes-Benz apologized after quoting the Dalai Lama in one of its advertising campaigns. However, the NBA did declare Morey’s comments to be “regrettable” in nature.

The Wall Street Journal noted that the NBA’s response attempted to satisfy both Hong Kong supporters and China’s mainland but ended up satisfying neither group sufficiently. In response to the NBA’s statement, China Central Televi- sion (CCTV) publicly stated that both Silver and the league would face severe retribution for their actions, and the Chinese government has already canceled multiple schedule NBA games in major Chinese cities. In addition, many basketball fans in the U.S. felt that the league did not support Morey and the Hong Kong protestors enough. The NBA found itself in a lose-lose situation, as they had to decide whether to prioritize their growing international relations or please their steady base of domestic fans. In addition, the league could not control the comments of many of their individual players, coaches, and owners, thus adding further barriers to the NBA cleanly resolving the problem.

However, while the NBA’s official response to the controversy did not fully back Morey, it did demonstrate the league’s willingness to protect the freedom of speech of its employees, which it must continue to value even at the risk of further loss of business expansion opportunities.

Nio is an electric vehicle (EV) company that has been making waves in the Chinese car industry. It is one of several new electric car companies that have emerged since the rise of rival Tesla Motors, founded by Elon Musk. Its first car, the all-electric ES8 SUV, began production for the Chinese market in 2018. The smaller ES6 SUV is planned to begin shipping in the second quarter of 2019. Nio also markets its EVE and EP9 cars; the EVE is a concept car and the EP9 is a low-production supercar. Currently, its flagship cars have yet to go into full production and its main income comes from eager investors. As of April 15, 2019, Nio was valued at $5.1 billion, and its stock price was at $4.77.  Clearly, this company has made impressive strides in the industry, but will it be sustainable?

Nio was founded by William Li in 2014. Li, a 45-year-old entrepreneur, has already garnered the apt nickname “The Elon Musk of China” due to his charismatic personality and activity in the electric car industry. In addition to establishing Nio, he is also the founder and chairman of BitAuto, a company which provides internet content, marketing and transaction services for Chinese automotive companies. In 2017 alone, Li was named GQ China’s entrepreneur of the year, China Automobile Dealers Association Person of the Year, and one of the Top 10 Economic Personages of China.

Along with having a charismatic founder, there are also more tangible reasons as to why Nio has generated such a great deal of excitement. First, China’s market for electric vehicles is expanding at an astounding rate. In 2019 alone, it has been projected that 814,000 electric cars will be sold in China, compared to 602,000 sold in the rest of the world. Additionally, the Chinese government stated that one out of every five cars sold in the country will run on alternative fuel by 2025, further increasing demand for EVs. Multiple large investors have also backed this startup, including Lenovo, TPG and massive Chinese tech company Tencent. These companies see the potential in the technology that Nio promises to deliver, including fully autonomous capabilities, a range of 600 miles and an extremely fast wireless charging system, all of which have yet to exist in the EV market.

Although it does promise amazing innovations and is full of potential, Nio’s market history tells another story. The company recently went public at the New York Stock Exchange in September 2018. It raised $1 billion, an impressive amount, but significantly short of its own $1.8 billion prediction. The stock price is also volatile—originally starting at $6.6, peaking at $11.6 early on, and currently priced at $4.75.

Moreover, Nio’s market evaluation is damaged by the fact that one of its major promises to investors has just fallen through. Nio previously planned to build a production facility—one that it would own itself and use to build cars in Shanghai. However, it recently announced in a stock exchange filing that these ambitions have been abandoned. The company did not release clear reasons as to why. This failure means that Nio will continue to work with its current contracted manufacturer, the state-owned company JAC Motors. While the partnership has been fruitful for Nio so far, it may not be sustainable. Nio’s current agreement requires it to pay a fee to JAC Motors for every car it produces as well as compensate them for any operating losses during the first three years of the deal. Nio already paid JAC Motors around $14.5 million before it went public. Nio’s initial plan was to transition to its previously mentioned self-owned facility around 2020, but with this recent development, the future location for building the cars seems much more uncertain. The company’s production woes are common for electric car industry. Elon Musk constantly references Tesla’s “production hell.” Faraday, a fellow electric automobile start-up, recently failed to build its $1 billion factory in Nevada, and is now facing a deteriorating financial situation. Nio’s decision to scrap plans for its production facility is a sign that it might be following in the footsteps of its competitors; the company may be headed for more serious financial trouble.

On top of abandoning its factory plan, Nio is also starting to show symptoms of being an unprofitable business. For example, the company struggles with the cost of buying its car batteries from third-party retailers. This is in stark contrast to Tesla, which built its first Giga factory to produce its own batteries. Nio’s business model may hurt the company in the long run, due to difficulties with maintaining its supply chain and creating economies of scale. Furthermore, the startup is projecting a slowdown in the number of cars it delivers in early 2019. This decrease is likely due to three main factors. First, China is reducing EV subsidies in 2019; Nio already increased the number of EVs delivered at the end of 2018 to beat the reduction but is nevertheless looking at a decrease at the beginning of 2019. The second factor is the general decrease in car sales in the months of January and February, which Elon Musk himself similarly has mentioned. Both of these problems are mainly short term, but the third, larger issue is car sales dropping in China for the first time in 30 years. If this is the case, then investing in Nio may be making a macroeconomic bet.

Overall, while it may market itself as the EV for China’s future, more signs continue to emerge that Nio may just be another failed “Tesla killer.” It is undeniably notable for its visionary founder, promises of innovation and ideal position to take on the expanding Chinese market, however, its serious production issues, questionable profitability and unpredictable future sales raise enough red flags for possible investors to question Nio’s true viability.

Private Chinese hospitals and healthcare companies are becoming promising investment opportunities, as their profitability and popularity continue to improve. In China, the growing middle and upper classes desire more patient-centered experiences in hospitals. At the same time, government initiatives are redistributing the burden of care on public hospitals. These complementary forces are driving the trend of privatization of medical hospitals and clinics in the country. Despite the paradoxical concept of private healthcare in a communist economy, the reformation of the Chinese medical system will allow private hospitals to attain the upper hand against public hospitals in the healthcare market.


According to China’s National Health and Family Planning Commission (NHFPC), the number of Chinese private hospitals has doubled since 2011. Data from 2017 showed that the compound annual growth rate (CAGR) of private hospitals has been 16 percent over the last seven years, while the CAGR of public hospitals has been flat. Business consulting firm Frost & Sullivan believes the revenue of private hospitals in China will triple to $90 billion by 2019 relative to 2016 levels.


The rise of private hospitals is rooted in the increasing wealth and living standards of the growing Chinese middle and upper classes. More than ever, patients’ demand for better hospital services exceeds supply. Affluent citizens flock towards top private hospitals and tier-three public hospitals—institutions that provide the best medical care and education and conduct the best research. However, as large tier-three public hospitals are already overcrowded, the government aims to relieve the strain, driving some patients to lower tiered hospitals and even more to private hospitals. Private hospitals in particular provide longer appointments and greater emphasis on preventative care. Laparoscopic surgeon Dr. Fang Zhang explains that since moving from the public Shanghai First People’s Hospital to the private Parkway Health Clinic, he discusses risks and symptoms in detail with his patients, helping them consider issues they may not have thought about previously.


Furthermore, the Chinese government is looking to develop the private sector because it will help support the rapidly growing aging population. 35 years of the one-child policy has resulted in an overwhelming number of age related diseases. The New England Journal of Medicine reported that there were already 92 million diabetic patients and 150 million pre-diabetic patients in the country in 2010, compared to 27 million in the U.S.


To accommodate the shift towards private health care facilities, public policy has fueled the construction of top-end specialty and general private facilities. Jiao Yahui, an official with the NHFPC said the country’s healthcare authorities have been relaxing certain policy controls. For example, the government now allows physicians to practice at multiple sites so they can work at private hospitals in addition to public ones. Because large public hospitals have more prestige in China, the new legislation makes it easier for private hospitals to recruit high quality physicians. According to the China Daily, the Chinese government also hopes that foreign investors will supplement the current health care system. In the 13th Five Year Plan, the Chinese government authorized foreign entities to own 100 percent of private hospitals, up from the previously required 30 percent Chinese ownership.


As the privatization of health care continues, developers in China are increasingly looking for expert training staff, help setting protocols and brand recognition. According to Bloomberg, the high demand for external support leads to high profitability in areas such as hospital management, medical distribution, drug R&D and private health insurance.


American businesses stand to gain from entering the Chinese healthcare market. The massive market has already attracted investment from insurance companies, entrepreneurs and public/private infrastructure developers, said McKinsey & Co Senior Partner Axel Bauer. ProMedica, a company running more than a dozen hospitals in the Midwest, is considering numerous deals in China on potentially running hospitals or providing consulting services to outpatient care and community health initiatives.


Hospital systems have especially promising prospects abroad in China. According to Melanie Evans of the Wall Street Journal, the domestic model is tough for hospital systems in the US, where populations may be stagnant or declining and cost pressures and competition are shifting medical care outside of hospitals. Compared to other U.S. sectors, the hospital industry has been slow to globalize. For many years, the strong domestic market kept most companies at home. However, now, as the U.S. government and consumers push to cut medical spending, hospital systems are seeking to diversify revenue with cross-border deals. China, given its current developmental state, is in the prime position to offer attractive margins to U.S. hosptials for their expertise.


Currently, Brigham Health and Massachusetts General Hospital are helping Chinese partners open new hospitals, while the Cleveland Clinic stated it would be consulting for a Chinese developer, claiming the project was in its very early stages. The Wall Street Journal explains that even though that overseas acquisitions by U.S. health corporations are still small compared to other sectors, they are undeniably on the rise.


Of course, the risk has been and still is high for U.S. companies to expand into a foreign country.

Benjamin Shobert of Forbes reports that those who have been working in China’s hospital space for the past several years have encountered difficulty in navigating the country’s maze of regulators and approval agencies. American companies will face unique challenges abroad, including how politically sensitive health care is in China. The Chinese government is moving slowly to prevent the destabilization of public hospitals from their reforms. No other industry of this nature has gone through a similar process of opening up to foreign direct investment. At the same time, the large amount of investment required to partake in the health care industry remains relatively constant. Yet, private-pay hospitals in China could be more profitable than ever before.


Despite being the biggest contributor to world growth, China’s economy has been causing worries at home and abroad for the past few years. First, China’s maturing economy experienced decelerated growth. Then, tumbling stock markets sent ripples throughout international markets. Now, China’s housing market is unnerving economists and analysts.

Housing prices skyrocketed between 2015 and 2016 in essentially all cities. In metropolitan areas like Beijing and Shanghai, there was a 25 percent increase in housing prices, and in Shenzhen, some property prices rose as much as 50 percent.

High prices made housing unaffordable for many. In highly developed cities, expensive housing has also resulted in a loss of talent, as many young skilled professionals sought employment in less-expensive cities and foreign countries. In fact, in 2013, the government of Shenzhen reported that Shenzhen companies, which include large technology companies like Tencent, lost 20 percent of their workforce due to expensive housing.

Urbanization has been one of China’s long-term strategies for economic development. Yet, the high living costs of cities have been prohibitive for many, especially low-income workers. Businesses have responded to the shrinking labor pool by raising wages, which has consequently increased labor costs. Higher labor costs have been one of the recent factors that reduced China’s competitiveness in labor-intensive industries.

Additionally, the ballooning housing market will likely have a damaging effect on China’s consumption. Between 2015 and 2016, loose financial regulations enabled people to easily obtain housing loans. As a result, many buyers incurred large amounts of debt. According to China’s central bank, housing loans increased by 2.3 trillion RMB ($335 billion) during the first two quarters of 2016, representing a 109 percent increase over that from the same period in 2015. Additionally, according to the Federal Reserve Bank of St. Louis, housing prices in China have been rising nearly twice as fast as disposable incomes.

Without remarkable wage increases, people must cut the consumption of other goods in order to pay off housing costs. The dramatic increase in housing prices would likely reduce future consumption and obstruct the government’s long-term strategy of making the Chinese economy more consumption-based.

Moreover, the rapid increase in housing prices has enabled many speculators to make significant profits, thus making real estate investment extremely lucrative. This has caused many firms, both private and public, to divert attention from their main business operations to engage in speculation. For example, Hirisun Technology originally expected a net loss of 20 million RMB for the 2016 fiscal year, but after selling an office in central Beijing, made a profit of 1 million RMB. Putian Telecommunication, Tianhe Defense Technology and Guangdong Daily Media are all expecting to become more financially stable by selling some of their real estate holdings.

The increase in housing prices has raised the opportunity cost of operating a business, resulting in a shift towards speculative activities. Although it is still too early to tell, a sustained shift from entrepreneurial and R&D activities towards speculation could reduce innovation and therefore stunt long-run economic growth.

Finally, rising housing prices have spurred widespread concern of a housing bubble for the past couple years. Many households in China save large portions of their wealth in housing and land, more so than any other asset class. Additionally, China’s real estate and construction sectors constituted approximately a fifth of GDP growth last year. Given that housing and land tend to be highly leveraged, a debt bubble can endanger China’s financial system and economy.

Yet, there are conflicting opinions on whether China’s real estate market is actually in a bubble. Researchers at the National Bureau of Economic Research (NBER) found that, in most cities, rising prices are being driven by rising incomes rather than irrational expectations.

“Mortgage loans were protected by down payments commonly in excess of 35 percent,” the NBER authors said. “The housing market is unlikely to trigger an imminent financial crisis in China, even though it may crash with a sudden stop in the Chinese economy.”

However, according to researchers at the Federal Reserve Bank of St. Louis, a bubble is emerging due to high capital returns that are “not sustainable in the long run.”

“Our theory suggests that China’s unprecedented income growth is not the full story behind the housing boom,” Federal Reserve Bank researchers Kaiji Chen and Yi Wen said.

The real and potential consequences of expensive housing naturally lead one to ask: Why are housing prices in China so much higher and what can be done?

Although a handful of factors contributed to rising housing prices, it is ultimately the product of a shortage in supply coupled with a boom in demand.

Weiying Zhang, a prominent Chinese economist, points out that Chinese local governments have a vested interest in raising real estate prices. According to the Shanghai Real Estate Research Institute, revenue from transferring and selling land use rights to private real estate developers accounted for 36.4 percent of the total 2014 revenue of local governments, not including government taxes on real estate development and transaction. Since all natural resources, including land, belong to the national government, local governments stand to earn a substantial profit when they turn the land over to real estate developers.

Thus, local governments experience an increase in their “wealth” when the real estate market is strong, and to that end, they have a strong interest in maintaining high housing prices. Local governments control the real estate market by directing the rate at which undeveloped land is handed over to private real estate developers. At present, this rate is relatively slow, so we observe that the supply of land and hence availability of new houses are very limited when compared to the demand exerted by China’s huge population.

While the supply of houses has grown only modestly, demand has expanded significantly. The high demand for houses is a result of both structural and short-term problems.

While the size of the Chinese middle class and its savings have increased, investment options in mainland China remain rather limited due to the restrictions the Chinese government has imposed on capital flow. The underdeveloped financial services market has thus caused real estate to become a particularly attractive investment to counter domestic inflation, particularly after the stock crashes in 2007 and again in June 2015.

Another short-run source of heightened demand was expansionary monetary policy. In 2015, with the aim of stimulating the real estate market and economy, the government eased restrictions for people applying for housing loans, which has encouraged many people to purchase homes, furthering the rapid rise in housing prices.

It is possible that this unexpected explosion in housing prices resulted in a frenzy among the Chinese middle class, who fear that future housing prices might reach an even more unaffordable level. As evidenced by the chart below, which is based on quarterly surveys from 2014 to 2016 conducted by the Statistics and Analysis Department at the People’s Bank of China, the percentage of respondents planning to purchase real estate hovered around 15 percent, and increased steadily to 20 percent by the end of 2016 Q4. This graph suggests that people’s desire to purchase housing has increased substantially, especially since this was a national survey covering 50 cities of varying sizes across the country.

In order to combat real estate speculation more effectively, the Chinese government should introduce higher taxes on homes that are bought and sold quickly. This would reduce people’s interest in short-run speculation since short-term profit would be substantially reduced. Such a measure would allow real estate profit to return to normal levels, and enable excess capital to flow to other industries. This tax was previously implemented in Hong Kong and was highly effective in curbing speculation.

Already, in an attempt to regulate and stabilize the real estate market, many local governments have introduced administrative eligibility regulations that would permit only local citizens to purchase local real estate. This measure prevents people from other provinces from investing and speculating in a region, and would thus reduce the demand for houses in so-called “first-tier” cities such as Beijing, Shanghai and Shenzhen. However, the regulation has only been effective in terms of temporarily freezing demand, and has not fundamentally reduced the underlying demand for houses.

In the long run, the Chinese government should seek to structurally correct this supply and demand imbalance. The government should further develop the domestic financial services industries to provide citizens with alternative investment options. Additionally, the government should improve transportation between large cities and nearby “satellite cities” in order to reduce the housing demand in large cities. The gradual increase in available housing in satellite cities and the reduction in demand for real estate as an investment would enable the Chinese housing market to restore stability in the long run. Otherwise, high prices may critically damage the development of the Chinese economy in terms of urbanization, consumption and innovation.

America has an addiction problem. The number of lethal drug overdoses has increased at an alarming rate, with a two-fold increase in opioid related mortalities since 2000. According to the Center for Disease Control and Prevention, there were over 47,000 fatal drug overdoses in 2014, 62 percent of which were caused by opioids, making drug overdose the leading cause of accidental death in the United States.

Drug addiction and overdose cases have been on the rise, and awareness has increased as well. Over the past few years, the addiction treatment industry, valued at $35 billion by the Substance Abuse and Mental Health Services Administration, has gained traction. Although the American addiction problem has caught the attention of policymakers and the general population alike, a subset of drugs has gone largely ignored — synthetic drugs.

Fentanyl is a highly potent synthetic opioid that is 50 times stronger than heroin, 100 times stronger than morphine and has grown in popularity in North America. According to a Wall Street Journal analysis, fentanyl has been linked to 9,600 cases of fatal overdoses since 2013. Music legend Prince was one of those cases this past April.

Prescription fentanyl is a legal painkiller for serious cases of cancer, but most fentanyl overdose cases are usually related to illegally obtained fentanyl, the majority of which can be sourced back to China. Many pharmaceutical or chemical companies in China send fentanyl directly to the United States, Mexican drug cartels or dealers in Canada. The Chinese companies also ship fentanyl precursors, chemicals that are essential to making fentanyl, to North American drug labs. Fentanyl usage is concerning not only because there has been a sharp rise, but also because fentanyl’s high potency and easy accessibility means that there is potential for increased abuse. In some forms, fentanyl can be fatal just from direct contact, and the Wall Street Journal reported a case in which an airport customs officer fell into a coma just from handling fentanyl.

Often times, people are not aware that they are overdosing on fentanyl until it is too late. Drug dealers mix fentanyl with other drugs, such as heroin or Xanax. Fentanyl pills have also been made to resemble less potent pain pills, such as oxytocin or hydrocodone, that are typically more expensive than fentanyl pills. This is dangerous because unsuspecting addicts think they are consuming normal pain pills but end up consuming a chemical that is much stronger, leading to overdose.

The business is ludicrously profitable, and there are loopholes to get through trade regulations. For example, by ordering unregulated chemical precursors and pill presses, Americans can start their own local fentanyl pill labs in their own houses. One pill press can produce thousands of pills per hour, and according to Wall Street Journal calculations, 25 grams of fentanyl costs $810 to make but could be worth $800,000 in pills— a profit of nearly 10,000 percent.

Additionally, Chinese pharmaceutical companies stay ahead of law enforcement by creating fentanyl analogues, variations of fentanyl that are often just slightly different in chemical composition. By shipping fentanyl analogues that have not yet been recognized by the United States government, Chinese companies and drug dealers skirt by the law to continue on with their business. It is difficult for law enforcement to keep up with fentanyl analogues that are constantly being created. For instance, when China made acetyl fentanyl illegal, to curtail drug abuse, other versions of fentanyl started appearing in North America instead, such as furanyl fentanyl, which is 5 times less potent that the original but is still the cause of many deaths.

In October 2014, China banned over 100 chemicals, including 19 fentanyl analogues, but progress remains slow. Trading is still easily accomplished, because many pharmaceutical companies simply “mislabel” their packages as random common goods. Even if a box of fentanyl or fentanyl precursors is discovered before reaching its destination, drug companies make it hard to track them by using multiple freight forwarding companies or fake addresses in China.

China is the second largest pharmaceutical market and has chemical resources, lenient drug regulation and low production costs. This irresistible fentanyl market has made China the main source for illegal fentanyl, and the main focus for United States policy makers who are aware of the fentanyl crisis.

Recently, in August, the United States and China held negotiations to curb the illegal trade of fentanyl. In a joint statement after a G-20 meeting, China agreed to exchange more information and increase regulation of drug exports, especially for drugs that are legal in China but not in the United States. In exchange, the United States Drug Enforcement Agency (DEA) will help train Chinese police to recognize financial irregularities and laundering that may be related to the Chinese synthetic drug business.

Negotiations show improvement, but talks and compromises take time to execute. China itself is preoccupied with heroin, meth and ketamine addictions rather than synthetic opioids. As a result, the country is more focused on regulating heroin than fentanyl.

Moreover, the Chinese pharmaceutical industry has only been growing and shows no signs of slowing down. According to the United States Department of Commerce and the International Trade Administration, Chinese pharmaceutical sales amounted to $108 billion in 2015 with an annual growth of nine percent. More importantly, United States imports from China added up to $2 billion with an annual growth of nearly 27 percent. These numbers indicate that strict trade regulations and decreasing Chinese drug exports are not trends that will be seen in the near future since there is such a large demand for Chinese chemicals. In the case of fentanyl, which is not strictly illegal in China, the synthetic drug operation benefits Chinese businesses, giving China little incentive to cut down on fentanyl trading.

Despite lack of incentive to regulate fentanyl trading, China is currently cooperating with the United States in negotiations. Therefore, it is important that the United States continues to make an effort to eliminate fentanyl usage, especially since fentanyl is increasingly contributing to and sustaining America’s drug user population. Eliminating fentanyl usage is key to fighting the war on drugs, which in turn decreases crime. According to the Bureau of Justice Statistics, 17 percent of state prisoners and 18 percent of federal inmates committed their crimes to get money for drugs. Many studies have also indicated that there is a correlation between being under the influence of drugs and committing a crime.

For the safety and health of Americans, United States policymakers need to not only commit China to strict fentanyl trade enforcement but to also pressure the United Nations to internationally regulate the drug as well. Currently, there are no international laws that have specified fentanyl as a problem, yet people from all countries risk exposure to fentanyl as long as illegal fentanyl is being produced and traded. United Nations recognition of fentanyl trade laws would both force China to comply with the standards of the international community and act as a symbol of unity behind fentanyl elimination. This would give China no choice but to act on promises made, preventing drug overdoses and saving lives.

Since the smartphone first came out on the market, people have been filling their screens with dozens of new apps. On many phones, you can find Uber, Facebook and perhaps a few apps from banks and popular stores. WeChat, a messaging app created by Chinese company Tencent, combines all of them into one and is taking advantage of the growing mobile e-commerce market to move beyond providing simple messaging services. Released in just 2011, WeChat has grown to have over 806 million users and makes its counterparts, Facebook’s Messenger and WhatsApp look primitive in comparison.

WeChat sets itself apart by combining and innovating features of many other social media and e-commerce apps. Besides simple messaging, WeChat also allows users to video chat and call their contacts. Users can also post photos and status updates in the “Moments” section much similar to Facebook’s Newsfeed. Their contacts can then tag, comment or like each others posts. WeChat has also brilliantly streamlined the process of connecting to new people. Users simply scan personalized QR codes to connect with new contacts. At large functions, such as a parties or networking events, users can quickly connect with each other by using the “shake” or “radar” features that connect individuals to others in their immediate vicinity.

WeChat’s foray into e-commerce is what truly set them apart. In 2013, WeChat launched WeChat Wallet, an internal app feature that at first allowed users to send money to each other, similar to PayPal’s Venmo. Many Chinese users especially took advantage of the new feature during the holiday season. According to the Wall Street Journal, in 2016 Chinese users sent 32 billion “bundles” of cash during New Years alone. About a year after the start of WeChat Wallet, Tencent partnered with Didi, a taxi hailing app. WeChat users were then able to call and pay for a taxi all within the app. In its first month, over 21 million cab rides were ordered via WeChat according to TechInAsia. This service largely helped Didi push Uber out of the Chinese market.

Tencent’s partnership with Didi was WeChat’s first major advance in e-commerce. Shortly after, WeChat launched in-store payments. Tencent took advantage of the WeChat Wallet platform and QR codes already in the app to make in-store payments more seamless. Users would first link their credit cards with WeChat Wallet then have their QR code scanned when making a purchase at a store. According to the Financial Times, WeChat handled 21 percent of Chinese mobile payments in 2015, just a year after starting the service.

WeChat also allowed businesses to make their own accounts, similar to Pages on Facebook. As a result, consumers can browse, research and make purchases all within the app. According to Tencent, over 300,000 retail stores connect with customers on WeChat. Like eBay and Amazon, individuals can start accounts to sell their own products. Businesses like McDonalds and Starbucks use their WeChat pages to allow customers to find the nearest store and order products for pickup. Other companies such as Coca-Cola took more creative measures to increase direct customer interaction. WeChat users can play games in the app and then receive Coca-Cola coupons, which then go to their “wallet” for later use.

WeChat’s diverse range of features affords it a unique advantage: one-stop shopping. Unlike other apps such as Uber or Amazon that offer a narrow focus of features, WeChat allows users to carry out many activities in one place, making mobile phone use more user-friendly. The app’s efficiency has allowed it to grow to its current size in just half a decade while also bringing in high revenues for Tencent. According to the BBC, WeChat’s growth helped Tencent overtake the better-known Alibaba as China’s most valuable tech company in August 2016. Tencent was valued at $249 billion, $3 billion more than Alibaba.

Another advantage of WeChat’s “one-stop-shopping” characteristic is that it can holistically look at users’ habits, unlike other apps that can only collect users’ habits in specific areas. This means that Tencent has the data to potentially analyze consumer markets more efficiently than other companies. The data collected from WeChat itself could also be a significant profit maker for Tencent.

With a strong user base in China, WeChat has turned its attention to foreign markets, most notably in South Africa and South Korea. In many foreign countries, more people use phones than computers. Therefore, the future of e-commerce will depend on mobile e-commerce growth. According to Gartner, a technology researching company, consumers will spend $2 billion on online shopping through their mobile devices by the end of 2016. Social media and messaging apps, especially Facebook’s Messenger, are losing out on what could potentially be billions of dollars in revenue. According to Forbes, in the first quarter of 2016, WeChat brought in $1.8 billion in mobile revenue. In contrast, Facebook’s Messenger brought in zero. WeChat’s potential to become a major player in overseas markets will increase as mobile e-commerce grows, despite the company’s moderate success abroad. Apps like Messenger need to innovate and go beyond simple messaging — otherwise many more people will be scanning each other’s QR codes than friending each other.

The oil industry is in one of its deepest downturns since the 1990s. On January 15, oil prices crashed six percent, with the Brent and WTI Index both closing at below $30 a barrel for the first time in 12 years. To put that in perspective, that is lower than it was in the midst of the 2008 financial crisis, the worst global economic downturn since the Great Depression, according to analysis by the Financial Times. It is clear that what initially began as a small price drop has ultimately resulted in an 18-month long plunge. Even worse, there seems to be little possibility for a recovery in the immediate future.

To understand the bleak state of the oil market, one must first understand the mechanics that are behind its trajectory. In 2014, crude oil prices peaked at $115 a barrel, almost four times what they are now. At first, many economists predicted that oil would continue its upward trend and fully rebound to pre-recession prices. However, a number of factors contributed to its slow, but continuous, downward slide. To begin, China, one of the biggest importers of crude oil, saw annual economic growth of only 7.4 percent in 2014, its lowest rate in 24 years. For the first time since its rocket-like expansion, it had missed its growth rate target.

Since then, the Chinese market has undergone a roller coaster-like trajectory, galvanizing government intervention and economic stimulus. While the stock market has no direct effect on oil prices itself, its fall has reinforced global concerns that the Chinese economy is heading for an abrupt slowdown, thus undermining future expectations for the sales of oil. Therefore, it comes as no surprise that the Shanghai Composite Index and the Brent Crude Index have closely mirrored each other.

The second and largest contributing factor to the decline has been the recent international glut of crude oil. Hyper-competition between oil producers desperate to cling on to their market share has lead oil production to surge over 95 million barrels of oil a day, despite declining prices, according to reporting by the New York Times. Crude oil inventories have swelled to the highest level on record. This rise in oil supply, unmatched by an equivalent rise in demand, has therefore put downward pressure on prices. Analyst Kevin Book of ClearView Energy Partners predicts that that this oversupply will continue at least until the last quarter of 2016. To make matters even worse, many of the world’s largest economies, the United States as a prime example, has moved to increase domestic production, diminishing the demand for foreign oil.

Lastly, the rallying U.S. dollar has made crude less attractive to overseas buyers. As is with any other commodity, Oil is always and only bought in U.S. dollars. Over the past year, the dollar has become stronger against most currencies. As a result, foreign importers are finding themselves spending more to buy crude oil, as they must exchange more of their local currency for each dollar.

With oil prices this low, many investors have argued that there is only room for rebound. This is undoubtedly false, as most of the factors contributing to the slide in oil prices, including China’s slowdown, supply-demand imbalance, and a the strong dollar, are likely to continue. Despite heavy economic stimulus, China will be unable to stimulate growth as it has once before, with this year’s growth projected to be only around 6 percent, according to the Straits Times.  Similarly, many emerging markets particularly in Latin America, the Caribbean, and parts of Asia and Europe are also facing economic contraction. As a result, these countries will weigh heavily on the global economy. In January, the International Monetary Fund revised their global economic outlook, lowering their growth expectations for the world economy down to 3.4% for 2016.

Lastly, the glut of oil is likely to see little to no resolution in the immediate future. With major exporters refusing to slow down production and Iran expected to become a major exporter of oil again under the nuclear deal, there is a serious possibility of the oil market not rebalancing until the last quarter of 2016. Iran’s oil minister Bijan Zanganeh believes that Iran will export 500,000 barrels of crude a day in the immediate post-sanctions period. In the six months after, this amount is set to double, with Iran exporting up to 1,000,000 barrels a day.

Thus, with oil supplies ready to rise, China’s wide-impacting economic slowdown, and rather mild predictions for the global economy in 2016, it is clear that the price of oil has nowhere to go but down.

While many companies are fighting to sell their products in China, one market brings potential Chinese buyers to American soil. The American real estate market has welcomed potential Chinese investors, often taking advantage of the Chinese desire for market stability. Chinese buyers have made their own niche market in U.S. real estate. While Chinese investors have helped raise historically low housing prices in some areas, the consequences of this niche market could be detrimental to both the United States and China. For the Unites States, Chinese property investment will cause gentrification and form small housing bubbles. In China, the amount of wealth leaving the country will hurt long term growth. Therefore, the two countries need to put limitations on Chinese access to the U.S. real estate market.

The instability of Chinese markets has driven many to look overseas for opportunities. Due to China’s slowing economy, the government has taken heavy measures to devalue the Yuan (RMB), often without any prior warning. In August of 2015, the government devalued the RMB for three straight days. While China likely made these measures to increase exports to boost the economy, it shook public confidence in the domestic market. This lack of confidence also probably contributed to the stock market crash in 2015. A cyclical process started. As the stock market fell, so did investor confidence. In addition, according to Alex Frangos, state-owned enterprises were ordered to buy back stocks. As a result, $3.5 trillion could have been put back into the market only adding to investor worries over inflation.

According to a semi annual report from the Department of Treasury, between $520 and $530 billion dollars left China for America in the first eight months of 2015. From a financial standpoint, the Chinese government flooding the market with cash caused this large sum. The government injected more cash into the economy to help industries after the recession and to lower exchange rates with the hopes to increase exports. This monetary policy combined with the previous government policies easing restrictions on moving money have helped Chinese investors move liquid cash abroad.

The United States must eventually restrict these investments. As more wealthy Chinese start investing and eventually immigrating to American cities, housing prices and the general cost of living will rise. The increase in costs will displace U.S citizens who will not be able to afford the change in expenses.  Vancouver, the destination of many wealthy Chinese immigrants, already experience this type of gentrification. According to the Real Estate Board of Canada, housing prices in September 2015 were up almost 16 percent compared to the previous year.

As the cost of daily life and business go up, existing residents and business find it difficult to cope, causing discontent to increase among local populations. In Vancouver, the increased cost of living has led to ethnic tensions. Local governments never desire a heavily divided population.  Therefore, in 2014, the Canadian government stopped its investor visa program, the program used by many Chinese to enter the country. The Ministry of Finance stated that participants were not making positive financial contributions though this statement has been criticized on racial lines.

Like Canada, the U.S. should also limit Chinese investment to avoid small housing bubbles. According to Zillow, housing prices in Palo Alto, California were up around 16.4 percent in January 2016 compared to the previous year. Chinese immigrants have been flocking to Palo Alto for years. Some have probably immigrated due to President Xi Jinping’s anti-corruption reforms. According to the Wall Street Journal, Xi Jinping has taken more measures to prevent wealthy Chinese from leaving. Chinese banks have increased efforts to hamper individuals wishing to move large sums abroad. As restrictions increase on moving liquid cash, Chinese demand for U.S. properties will eventually decline, causing prices to fall. Should the Chinese government decide to suddenly crackdown more on international wealth transfers, communities such as Palo Alto may see a sudden drop in property values, as if at the end of a housing bubble. Given Xi Jinping’s strong attitude towards corruption and emigration, it would not be surprising if the Chinese government imposes more drastic, sudden limitations in the future.

While the United States cannot predict when or if the Chinese government will impose more restrictions, it can take its own steps to slowly curb Chinese investment. One significant measure is to tighten restrictions on the EB-5 investor visa. The EB-5 visa gives a green card to anyone and his or her family if they invest at least $1 million in a commercial enterprise that can create or support at least 10 full time jobs. Many Chinese use the money invested in American properties as a way to fulfill the monetary requirement while using projects on the property to fulfil the job requirement.

The United States should increase the amount required to obtain the visa. Many Chinese investors can put down $1 million with ease. The United States could also decrease the cap on visas given per year and only offer them to the highest bidders. This would decrease the amount of people entering the United States with this visa while also maximizing investment in comparison to just a general cap. The U.S government should implement reforms slowly though. If the United States hastily restricts Chinese immigration, housing prices in cities like Palo Alto would drop rapidly, American investor confidence in the over all real estate market could shrink.

China must also do more to reverse the exodus of wealthy Chinese. The more investors buy American property, the more Yuan they dump on the currency market. While China has attempted to devalue its currency to raise exports, the increasing efforts to depreciate the Yuan in comparison to the U.S. dollar will only encourage investors to buy American properties faster to avoid further losses. While Chinese banks have stepped up monitoring if people are following existing rules that limit exporting money to $50,000 per year, this measure will not be enough in the long run. The lack of Chinese confidence in their domestic market is the root of the problem. To improve confidence, the government needs to take a more hands off approach toward the markets. By letting markets take care of themselves, investors will not have to worry about sporadic government intervention that has been historically hard to predict. When government intervention is necessary, the Chinese government should give investors warnings about what actions it might take in the future. This will allow investors to prepare ahead of time and give more certainty to the market. However, to make these approaches work, there must be consistency between different Chinese administrations. One aspect of not only market instability but also government instability is the ease with which policy can change with leadership changes in Beijing. Increasing domestic market confidence will enable Chinese to invest at home, something that may help China’s slowing economy.

While Chinese investors have helped the real-estate markets in certain areas, the benefits will not last forever. China does not need more of its affluent citizens leaving the country and the United States does not need to see small housing bubbles across the country. Both countries need to rethink current policies before these issues become bigger. When markets suddenly boom after a slump, not many think about the long-term effects of what will happen. At least on the part of the United States, the US government must not let the current success of Chinese real estate investment get in the way of looking at long term consequences.

What was initially seen as a healthy clearing of froth from one of the world’s fastest growing market has become a worrying and globally catastrophic nosedive. Over the past few months, China’s stock market has endured a roller-coaster-like trajectory. Recently, the Shanghai Composite index has hovered around $3000 per share, marking a loss of a year’s worth of growth. Investors from around the globe have watched as the Chinese government has fought, to arguably no avail, to artificially prop the market back up. Despite the government’s extreme policy measures, daily swings in the market have been extreme, peaking in a one day 8.5 percent drop known as “China’s Black Monday.”  While the changing global arena has lent for a correction in the Chinese market, the greatest change, however, seems to be in the mindset of investors themselves.

Due to extent of government intervention in its own market, many have come to see China’s market as a reflection of its own credibility and reputation. China has taken a more hands-on approach to controlling its market than any other economically significant country in the world. Preceding the crash, China’s state-owned media stations encouraged individual investors to make risky investments using borrowed money. In many cases, the aggregate of their investments exceeded the rate of growth and profits of the companies. In addition, the central government began to slowly loosen monetary policy, eventually lowering lending rates. As a result of China’s heavy involvement in the market, many investors found themselves in an arena rife with moral hazard. Investors were able to make risky bets with the cushion of the Chinese government stepping in to prevent crashing stocks. This “risk-free” environment was able to galvanize soaring levels of investment in the market, creating a bubble in the market despite economic slowdown. In one year, the Shanghai Composite had climbed more than 150 percent.

Once the market had begun to fall, China underwent extreme measures to stop the market from falling further. Despite president Xi Jinping’s expressed desire to make the Chinese stock market a more liberal and globally integrated entity, the Chinese government created and enforced an onslaught of restrictions on the market and its investors. In July, the China Securities Regulatory Commission imposed a 6-month ban of stock sales by major shareholders. In addition, officials threatened to arrest any investor found of short selling, a form of investing that essentially bets against the market. Shortly after, stock prices began to artificially rise again, only to result in China’s largest drop yet, known as Black Monday. Once again, Chinese officials searched for scapegoats to preserve their international reputation.  In less than a week, Chinese authorities arrested and questioned 197 people they blamed for “spreading online rumors” that “lead” to Black Monday.

Yet while China scrambled to defend its economy, the response of its citizens has revealed changing ideals. Although government has tried to artificially prop up the stock market and convince their investors of less volatility, the prospect of possibly losing life savings has put many investors into a state of panic. Nearly a third of the country’s individual investors (more than 20 million people) have fled the plunging stock markets. The number of investors holding stocks in the account fell from 75 million in June to 51 million at the end of July. Backed into a corner and scarred by losses, Chinese investors have looked for safer forms of investments. Many have realized that there is nothing stable to be found at home. As ZZ Xu, a Shanghai restaurateur, noted, most Chinese citizens have come to realize that they “can lose a lot of money very quickly.” With the second highest rate of urban household savings (51.5 percent), much of China’s citizens have begun to pour their money into foreign investment, specifically, real estate. Currently, Chinese investors are the leading foreign buyers of U.S. Homes, accumulating a record $29 billion dollars in annual sales. Similarly Australia’s foreign investment review body recently stated that China had overtaken the U.S. as the country with the largest investment from overseas, totaling roughly $19.6 billion dollars.  At the end of August, China’s monthly capital outflows peaked at a record high $141.7 billion dollars.

In some contexts, the increase of outward investment is no cause for panic. However, China’s current economic state leaves it particularly vulnerable to this flight. Firstly, this outpour inopportunely arises when China is experiencing slowing growth. As a result, many of the “post-economic boom” businesses that were funded through loans are already struggling to raise capital. Secondly, China is already using monetary easing to prop up its economy, and is thereby left impotent in defending its currency. It comes to no surprise that China subsequently devalued its currency, a common result of capital flight and a last-ditch attempt to strengthen falling exports. Thirdly, the imminent Federal Reserve rate hike will cause even more capital outflows, as investors will be given even more incentive to preserve their wealth in U.S. financial institutions and instruments. Lastly, volatility in Chinese markets and decreasing investor confidence has also scared away many foreign investors. On Aug 25th, shortly following China’s “Black Monday,” foreign investors pulled a record $19 billion dollars out of Chinese investments. At the end of the week, the outflow totaled $29.5 billion dollars, surpassing any weekly outflow during the U.S recession.

More broadly, the rise and fall of the Chinese Stock Market has stained the market itself permanently. While it has undoubtedly directly affected global equity and commodity prices, it is the indirect effect that will last for years to come. Unlike in other significant economies, institutional investors play a rather small role in China’s stock market. Rather, retail investors, of which more than two thirds didn’t even graduate high school, own around 80% of tradable shares.  As a result, China’s market is primarily driven by one force: investors’ confidence. With millions of individuals fleeing the market, even more are destined to follow the pack. This leaves China’s market subject to a downward-spiraling cycle. Retail investors are leaving the market because returns are poor and returns are poor because individuals are leaving the market. Moreover, the increase of capital flight will continue to damage Chinese businesses themselves. While China has already posed stricter capital regulations, and has sought to cut down on money smuggling, the flight continues to grow. As a result, the Chinese government will soon find themselves in a relatively impotent state to defend the market. With few institutional and state-owned investors to command and increasing capital outflows, their artificial stimulation will run out of steam.

This article was co-published by Seeking Alpha on Sep. 13, 2015.

Over the past few months, China’s precipitous stock market drop has been wreaking havoc in markets across the globe. In the middle of June, China’s stock market hit a seven-year peak after surging more than 150% in 12 months. Many analysts had been warning that the rise in the Chinese market was driven by momentum rather than fundamentals, since the Chinese economy seemed to be losing steam. Yet, the dramatic surge in stock prices continued unheeded until mid June, when the market suddenly turned. Since then, the Chinese stock prices have dropped nearly 40% culminating in a one day drop of 8.5% on August 24 which is now being called China’s Black Monday. According to Barrons, top strategists and money managers predict another 15% decline before the market hits bottom.

Shanghai Composite Index performance over 1 year (Source: VOX)
Shanghai Composite Index performance over 1 year (Source: VOX)

Around the globe, fears have been rising as to the potentially catastrophic political, social and economic consequences a financial crisis could have for China, its closest trading partners and the global economy as a whole. In China, individual retail investors directly own the majority of shares and their losses risk hurting the real economy and even leading to social unrest. Therefore, the rapid decline of the stock market has worried the government and president, Xi Jinping, who were already struggling with a Chinese economy that had been losing steam. Having increasingly drawn its credibility from the strength of the stock market, the Chinese leadership has become increasingly desperate in their effort to prop up equity prices.

What was behind the bubble?

The Chinese stock market bubble is largely believed to have been abetted by a host of measures undertaken by the government. The central bank had loosened monetary policy, leading to falling borrowings costs stimulating investment. Similarly, several liberalizing laws had made it easier for funds to invest and for firms to offer shares to the public for the first time.

Thus, after languishing over the past few years, the stock markets in Shanghai, with 831 listed companies and Shenzhen, with 1700, took off last summer rising to dizzying heights. Shares of newly listed companies soared, sometimes thousands of percentage points within months of their initial public offering, fueling a large amount of speculative buying among a new cadre of retail investors which included tens of millions of ordinary workers, farmers, housewives and pensioners.

As Orville Shell from the Guardian reported in “Why China’s Stock Market was Always Bound to Burst”, there were several unmistakable signs that should have raised alarm bells. First of all, Chinese stocks were climbing ever higher while the Chinese economy was experiencing a slowdown. Secondly, a significant disparity in prices between “A-shares”, which can only be purchased by investors inside China, and “H-shares” stakes in the same companies available to foreign investors through the Hong Kong exchange, should have been a telltale sign that Chinese investors were bidding up prices beyond any reasonable value.

Schell reports that , “drawn by the casino-like profits to be made in the boom, more and more small investors flocked to the thousands of brokerage houses that are now proliferating in every Chinese city.” With the Shanghai and Shenzhen exchange up 135% and 150% respectively in less than a year, stocks had begun to seem like a sure thing with promises of quick profits for the millions of Chinese investors hungry for wealth. As such, compared with the 2% annual rate of return promised by traditional bank savings accounts, investing in the stock market for those able to do so,seemed like a no brainer.

Instead of focusing its efforts on regulating the speculative boom, “The government itself had become bedazzled by the seemingly invincible rise in stock prices”, according to Schell. The Chinese government took measures that further inflated the bubble. The government itself took advantage of the rising prices to sell equity stakes in dangerously debt-burdened state enterprises and clean up messy balance sheets.

What caused the market to turn?

In mid June, investors suddenly realized that stock valuations had lost touch with all fundamentals, and the bottom finally fell out. Within less than a month, the market had suffered a 32% decline. The loss of investor confidence led to a precipitous rush to sell.

The fall has been exacerbated by the amount of margin lending that had built up during the boom. Over the past few years, there had been a substantial increase in margin lending in which individual investors borrowed from a broker to buy securities. While the market was booming this allowed small time investors to put very little money down, borrow the rest to buy stocks, and then pocket outsized profits when they sold. However, the explosion of margin lending left many households highly exposed to the risk of a drop in stock prices. As prices of securities began to fall in mid June, brokers made demand for more cash or collateral (margin call) which meant that investors had to sell immediately. .

What measures have been taken?

Since mid June, nearly half of the market, or 1300 companies have suspended their shares in an attempt to stall the steep decline. Meanwhile, in desperation, the Chinese authorities hastily enacted a series of measures which they hoped would stop the decline.. They curbed the amount of new shares issued, in order to prevent any further dilution, and enlisted brokerages and fund managers to buy large quantities of shares, supported by the China Securities Finance Corporation (CSFC), China’s state backed margin finance company which has a direct line of liquidity from the central bank. On July 4, China’s top 21 securities brokerages pledged to invest at least 120 billion yuan (19 billion dollars) collectively to help stabilize the market.

Despite these measures, the Shanghai Composite index closed the month of July with a decline of 15%, the worst it has suffered since 2009. On August 10, the People Bank of China’s 2% devaluation of the yen, enacted in an attempt to respond to their recent economic slowdown, caused stocks to drop even more over the following days. On August 14, the CSRC surprised the market and the world by announcing that Beijing was going to allow market forces to play a bigger role in determining prices, marking a dramatic reversal from its previously interventionist stance.

On August 24, following the dramatic one day 8% drop which erased all gains for the year, the Chinese central bank again cut interest rates. A few days later on August 27, senior Chinese central bank officials shocked the world by telling Reuters that wide gyration of markets over the past week was caused by concerns over a possible interest rate rise by the US Central Bank rather than any measures by the Chinese government. At this date therefore, it is not clear what the Chinese government can or will do.

Will this spread into other markets?

The effect of the Chinese stock market drop is being most immediately felt by a broad decline in commodity prices around the world. Particularly, China’s problems have further pushed down the price of oil, which briefly fell to under $40 a barrel in the United States. The price of most other commodities, notably copper and aluminum have also been undermined by the possibility that lower than expected sales to China, which is the largest market for industrial commodities.

Russ Koesterich, Global Chief Investment Strategist at Blackrock noted that the roller coaster ride in China is mainly a domestic one, because, as noted above, most foreign investors hold H-Shares that did not experience the same bubble valuations and the linkage between China’s economy and its stock market isn’t particularly strong. Nonetheless, markets around the world became jittery as the Chinese bubble continued to deflate. The Chinese “Black Monday” on August 24, caused world markets to tumble in a rout that erased $3 trillion in value from stocks globally. While most markets stabilized the next day, ending fears of a free fall, the recent turmoil caused by China has led many investors to turn their focus to government officials- who have become the most prominent players in many financial markets since the 2008 crisis. In particular, the apparent eternal debate about whether the Federal Reserve in the United States will still follow through with plans to push through an interest hike has once again been revived.