Top Three Reasons China’s Economic Problems Affect World Markets

Most investors from around the world don't trade in China's stock markets; however, the continuing Shanghai market crisis is a very big threat. Why is that?

For starters, China is the largest exporter worldwide, worth $2.2 trillion in 2013. It also ranks second among the largest importer, worth $2 trillion. These facts go to show that whatever economic challenge the nation goes through, it will greatly affect global markets. That is exactly what's happening for the past days.

Now, add the significance of its sheer size, its complex Communist government and bad response to a quickly declining market. Its decisions to cut interest rates, reserve bank requirements and close stock markets are accused as desperate.

Ashwin Alankar, the head of global asset allocation at Janus has exclaimed, "Who on God's earth thinks it's an appropriate measure to close trading for 70% of the market?" According to him, the clumsy moves show that "the People's Bank of China has lost its credibility."

How exactly are other countries affected? Here are the biggest reasons China's economic woes have led to declining markets.

Commodities Markets Are Affected

If the nation's real economy truly slows down, the impact is great on manufacturers of commodities - considering that it imports food products, worth billions of dollars, as well as coal and oil. The U.S. won't be affected directly, but Saudi Arabia, its biggest oil trade partner (accounting for 14% of total imports), will.

Other Asian Nations Are Exposed

China trades with most countries in Asia. It obtains over 10% of exports from Indonesia, Japan, Korea, Malaysia and Singapore. It obtains almost 20% of exports from Saudi Arabia. Its trade extends to Ethiopia as well, accounting for over 10%. It also gets nearly 30% of exports from Australia. What's worse is that most of these nations are going through a market slump.

Major U.S. Companies Are Exposed

These include Caterpillar, Boeing, Apple and General Motors, though some won't admit they are anxious. GM, in particular, has sold over 3.5 million vehicles in 2014 through various projects with local Chinese companies. On the other hand, Boeing has commented that aircraft order lead times will prevent the slump from affecting their sales.

The company's spokesperson, Randy Tinseth told reporters, "Despite the current volatility in China's financial market, we see strong growth in the country's aviation sector over the long term."

Apple, like Boeing, is also positive that the unstable market will have a big impact on its sales.

In the end, it's too early to forecast the extent of this problem or if it will affect the real economy. Will it be similar to the incident in the West in 2008? Or will it be the same with the internet bubble burst, which has triggered only a minor slowdown?