China’s bubble has popped

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I f anyone doubted it, China’s bubble has finally popped. The Shanghai Composite Index is down 50% from its highs in 2007. That is a massive downswing that must have broader consequences. Moreover, this is likely the result of a realization that Chinese equities were overvalued in a world where the U.S. consumer is under siege and inflation is rising. What the impact will be on Chinese manufacturers and Chinese consumers is still unclear.

What is clear is that the high-flying Chinese economy is about to suffer some unexpected turbulence just in time for the Beijing Olympics. I hope this puts the notion of global decoupling to rest.

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