Foundations in Accounting Analyze Crisis or Risk -free Sample

Question: Discuss about the Chinese Stock Market Krash in 2015. Answer: Inflation rate As per the CPI data of the historical analysis of inflation rate in China it has been observed that there had been no repercussions of crash of the stock market on inflation rate in China. It has been further seen that in the 2015, the inflation rate in China was 1.44%, which was 0.48% lower in terms of 2014 and 1.24 % lower in terms of 2013. Hence, it can be seen that despite of crash in the stock market on inflation rate in China was not affected largely (Media, 2017). The various types of future analysis have shown that in 2016 the inflation rate increased to 2%. Hence, it could be seen that the bank started charging more interest and people are to spend more amount of money for higher standard of living even when there was no crash in the stock market. Budget deficit/GDP In 2015, it was observed that Chinas budget deficit was higher than it was in the previous years. The reason for this was mainly due to the increasing fiscal spending by the government to boost economic growth. There has been seen to be a 2.7% deficit in the budget of China, which is a decrease from record low of 2.8% in 2009. Debt/ GDP Based on the current findings it has been seen that the present approximate debt of China stands at CN 28 trillion, which is seen to be close to 41% of the total GDP of the country. It was declared by IMF in 2015 that the financial sector reforms were progressing in an uneven pace. These very evident from banks being providing little incentive for seeking better projects and correctly pricing of risks. In addition to this, the International monetary fund also reported several negative impacts of crash of the stock market, which increased the contingent liability shocks in the large-scale banks associated to recapitalization of the financial system. Income inequality (Gini) China is seen to be having the worlds highest level of income inequality with the 1% of the rich population owning one third of the countrys wealth (Ft.com, 2017).Several other study has been able to show that the poorest 25% of the households in China are seen to own 1% of total wealth. The Gini coefficient for income in 2012 was seen to be 0.49. The standard coefficient of income inequality suggested by World Bank is seen to be 0.4%. Corruption (Transparency) President Xi Jinping has been seen conduct several campaigns to highlight the corruptions, which are going on in the country. The country has been seen to be fighting corruption for zero tolerance stances and fastening of the cage of regulations. Some of the main form of corruption that is seen in terms of organization to run personal business, which is not tolerable in China. The countrys main hot topics in 2015 associated to challenges are seen to be in form of cyberspace crime. The country has shown vast potential in terms of ethical hacking but at the same time, it has faced severe socialism issues associated to conduct innovative activities associated to cybercrime (Steven Jiang, 2017). Current account As the GDP was seen to be largest in 2015 it was also observed that the current account were largest 2.72%. In terms of dollar value, China was seen to be holding a record of maintaining $ 293 billion as current account value along with a trade surplus of 3.42%. The surplus was seen to be widely accepted by fall in the imports by 10% and falling import prices to some extent. The net income and the net transfer are not identified as the fundamental component behind current account as it showed little change from the former year (PIIE, 2016). Main specialization of the country The sectorial contribution in the GDP of China has shown that the country is mainly based on service industry with more than 50.5% contributions made in 2015. The industries are further seen to contribute 40.5%. Hence, the main specialization has been seen in terms of industries and services. In addition to this, China has been seen to be adopting agent-based financial model in the market with various types of preferred strategies for providing empirical validations on full market scale. The comprehensive study has been able to show that the strategies are synchronous to the stock returns whereas forms of the second group order have a negative correlation. Political stability/instability The political stability in the country is seen to be relatively low due to various types of legal and regulatory transparency and emergence of new markets. The political system in China has also shown very little transparency in doing business and greater form of risk for the new investors and foreign companies. Some instances of instability has been seen in terms of corporate filings and other accounts not been treated in the same way as it is done in several types of European countries and the United States. There has been further seen to be various conflicts associated to interest between suppliers, buyers and companies (Business Insurance, 2017). Recent trends in economic and political situation The political situation of China is divided into five categories namely unitary state, socialist estate, one-party state, peoples democratic dictatorship and communist state. Based on the present findings the Communist party is seen to be holding an effective power at national level with its general secretary appointed as Xi Jinping. The continued investment has been able to fuel the economy largely. The country is seen to be ranking ninth in terms of maintaining the highest level of nominal gross domestic product. In the recent times, it is considered at the world leader in the manufacturing hub (FocusEconomics, 2017). Disequilibrium or Crisis Episode The disequilibrium with the crisis episode was seen with 8.5% drop in the Shanghai Composite index. However, the country was seen to tackle the global economic crisis in an effective manner in compared to the other countries. The main supporting factor in the crisis episode was seen with a GDP rate higher than 9% and in terms of the sound fiscal position. The various types of policies a further seen to foster the economic growth of the country and curbing the imbalances in the macroeconomic level. Outlook and Ratings At the start of 2015, the price-earnings ratio of the country was seen to be 26%. These particular ratings were observed to be the peak ratings, which were achieved by the country in the stock market bubble during 1929. The good market indicator of the P/E ratio was another factor for overcoming the crash of the Shanghai stock exchange in 2015. It is an further seen to be showing an impressive economic growth with 7 to 10% growth annually whereas other countries such as United States has shown the potential of only 2 to 3% every year (Vox, 2015). Conclusion Based on the several analysis, it has been found that more than thousand listed companies, which were worth market capitalization to nearly one third of the overall GDP. The various discourses has been further developed to state that the country has been able to maintain a competitive inflation rate even during economic crisis and crashing of stock market. However, some of the limitations have been found in terms of non-transparency in the political context and providing better opportunities to the emerging markets. The various types of effective economic measures taken by the government have been able to curb the negative impacts during financial crisis. A maintaining a good P/E ratio has been further seen to be conducive in tackling several types of situation such as discussed in the study. References Allen, K. (2015).Why is China's stock market in crisis?. [online] the Guardian. Available at: https://www.theguardian.com/business/2015/jul/08/china-stock-market-crisis-explained [Accessed 30 Apr. 2017]. Business Insurance. (2017).Political stability in China comes with little transparency - Business Insurance. [online] Available at: https://www.businessinsurance.com/article/99999999/NEWS03/120309887/political-stability-in-china-comes-with-little-transparency [Accessed 30 Apr. 2017]. Economist.com. (2017). [online] Available at: https://www.economist.com/news/business-and-finance/21662092-china-sneezing-rest-world-rightly-nervous-causes-and-consequences-chinas [Accessed 30 Apr. 2017]. 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