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Chinese volatility vexes Cambodia

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.