Now When China Sneezes, The World Catches A Cold

The U.S. is healthy enough to withstand Black Monday, but it and the rest of the world must learn to watch out for Chinas well-being.

- Peter Coy

When the Dow Jones industrial average fell almost 1,100 points soon after the opening bell on Aug. 24, the world suddenly seemed like a very small place. A tidal wave of stock selling that began in Shanghai had rolled all the way into lower Manhattan as China’s problem became, undeniably, America’s. Wall Street panicked. General Electric, JPMorgan Chase, and Home Depot lost a fifth of their value in minutes. For the first half-hour, the Chicago Board Options Exchange couldn’t even calculate its Volatility Index, also known as the fear gauge. Markets from Asia to Europe preceded the U.S. downward. “There’s no rational choice anymore, no rational reaction,” Michael Woischneck, a senior equities manager for Lampe Asset Management in Düsseldorf, Germany, told Bloomberg.

U.S. markets partially rebounded that day and the following ones as investors realized that the U.S. economy isn’t on the precipice of a recession. But that doesn’t take away from the importance of what was quickly dubbed Black Monday. China, which makes the world’s steel, electronics, and bobblehead dolls, has now demonstrated it can make a pretty serious market crisis, too.

China accounted for almost 40 percent of global growth last year. Its appetite for raw materials has undergirded economies from Australia to Brazil to South Africa, and its production capabilities have lowered prices of industrial machines and consumer goods everywhere money changes hands.

But it’s also kind of a mess.