China and Greece: a Tale of Two Crises

Two crises have dominated the financial news agenda this week: the Greek debt crisis and the plunge in the Chinese stockmarket. Both could have a big impact on the global economy. The Greeks could precipitate the disintegration of the Eurozone, the Chinese could foretell a crash not seen since Wall Street in 1929. Those gloomy scenarios have led some to speculate about which one of the two has the greatest significance. So, how do the two crises compare?

What’s at stake?

In Greece, it’s the debt the government owes to its various creditors — €320 billion or more than 170% of its GDP.

In China, it’s the value of publicly listed stocks — a loss of more than $3 trillion from its peak or 30% of GDP.

Who stands to lose?

In Greece, two groups could be affected: creditors if Greece is partially bailed out or refuses to pay, or the Greek people if further austerity measures or tax increases are brought in. Greece’s creditors are mostly European governments, chiefly Germany, which has lent some €55 billion or €650-€700 per person. The groups most at risk are Greek pensioners, who are seeing their pensions cut, government employees, who might lose their jobs, and companies and consumers facing higher taxes.

In China, the losers are people owning stocks and listed companies who have seen their valuations plummet. China’s stock markets are, for the most part a mom and pop affair—about 80% of stock trading is by Chinese individuals, but that still only affects at most 14% of the population. Only 15% of households’ financial assets are held in stocks and just 1.5% of bank loans support the activity.

How does the current crisis look like from a longer term perspective?

The Greek economy has declined by about a quarter since 2008 and Its debt, despite two restructurings, has only come down by about 10%, meaning its debt-to-GDP ratio has worsened significantly.

In China, despite the recent fall in the stock markets, the value of stocks is simply back to where it was in March and still up by 75% over the past year. It’s as though Chinese stocks had simply skipped a quarter. Meanwhile, Chinese GDP has double in dollar terms since 2008.

 

Author: Peter Vanham is a senior media manager with the World Economic Forum

Image: A Syrian immigrant waves Greek and Syrian flags during an anti-austerity protest in front of the parliament in central Athens, Greece, July 10, 2015. REUTERS/Yannis Behrakis