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China’s economy is in trouble. That’s bad news for US stocks, and potentially for your portfolio.
What’s happening: Chinese consumer spending, factory production and investment in long-term assets (such as property, machinery or other goods) all slowed further in July from a year ago, according to the country’s National Bureau of Statistics.
Youth unemployment in the world’s second largest economy has repeatedly hit record highs. Earlier this week Beijing decided to suspend the release of that monthly data altogether.
Tensions between the US and China, meanwhile, have been on the rise as the world’s two largest economies clash over issues ranging from trade policy and technology, to Russia’s invasion of Ukraine.
Last week, President Joe Biden announced an executive order limiting US investments in advanced technology industries in China. The order prompted fund managers to worry about how they should be investing in the country.
Separately, a Congressional committee announced earlier this month that it is investigating BlackRock, the world’s largest asset manager, and MSCI, one of the biggest providers of index funds, to determine whether they are investing in Chinese companies blacklisted by the US government for security and human rights issues.
Why it matters: “For most of the last two decades, China’s economic growth has been a major driver of the global economy,” said Alex Etra, a strategist at data analytics firm Exante. That means that if China’s economy slows down, global economic growth slows down.
“When global economic growth slows down, that tends to be negative US equities. And some of that has to