For the second time in five months, the Shanghai Composite Index saw
large corrections this week triggering a newly installed circuit breaker
to halt trading on Monday and Thursday.
The downward spiral proceeded to cause a domino effect across world
indices, mirroring a similar sell-off that created panic last August
over the stability of China’s economic dream run.
Analysts raised concerns about the soundness of the manufacturing
behemoth’s economic fundamentals, with many predicting a dramatic
slowdown in China’s growth this year.
The slowdown has accompanied a 5 per cent devaluation in the Chinese
yuan since August, with both factors expected to continue to weigh down
the region’s prospects.
Cambodia in the past few years has been heavily linked to China
through massive inflows of investment that are being used to develop the
country’s roads and energy infrastructure, as well as Chinese tourist
arrivals – one of the biggest blocks of travellers entering the Kingdom.
While the market crash has caused jitters in regional economies,
Jayant Menon, lead economist for ADB’s Office for Regional Economic
Integration, said China’s underlying real economic situation still
remains “uncertain and volatile”, but the devaluation in the yuan
suggests things could be “dire”.
“The developments in the stock market are relevant to the extent that
they mirror underlying changes in the real side of the economy,” Menon
said. “What is clear now is that the situation is likely to be much
worse than earlier anticipated.”
It would be premature, Menon said, to anticipate any impact on
Cambodia, but tourism and investment flows were the sectors likely to be
adversely affected.
“The only question is how big a negative impact it will be,” he
added.The World Bank’s “Global Economic Prospect” report released on
Thursday highlights the increased interlinking of economies in the
region, with growth fluctuations in China, and Japan, expected to have
an increased spillover into regional economies.
The report points out that Chinese investors have garment
manufacturing, construction and tourism investments in the Kingdom,
amounting to a fair amount of exposure to economic tremors from China.