International investors and analysts were on high alert Monday after China’s benchmark Shanghai Composite index sank nearly 8.5 percent amid frantic selling, despite Beijing’s efforts to stabilize the stock market. The crash could trigger financial troubles for other major economies, including the United States.
China is the second-largest economy in the world, but the country’s explosive growth has fallen to its lowest level in years. If China’s economy slows faster, it could take foreign trade and multinational companies down with it, according to CNN.
While the American economy is not fueled by foreign trade, trade is the most direct link between China and the United States. U.S.-China trade was on track to top U.S.-Canada trade as the largest in the world, according to State Street Global Advisers. Chinese consumers often prefer foreign brands – including American -- over local products, but that could change if China’s economic troubles persist, CNN reported.
— Alex Frangos (@alexfrangos) July 27, 2015
Multinational companies with significant exposure to China could also be disproportionately affected by the crash if growth continues to decelerate. In the United States, 40 percent of the revenue generated by S&P 500 companies has come from overseas. Fears about a slowing China have already hurt earnings this season. For example Akhil Johri, chief financial officer at United Technologies, said the manufacturer saw new equipment orders at its elevator business fall 10 percent last quarter in China, according to CNN.
China’s stock market began to crumble in late June and early July. Last week, American stocks fell hard and the Dow Jones Industrial Average posted its biggest weekly hit since January, according to Reuters.
China's state-owned Xinhau news agency reported Monday that the Shanghai Composite index -- which tracks stocks on China’s second exchange -- fell more than 3 percent. But outside reports stated the stock composite plunged 8.48 percent – closing at 3,725.56 – and the smaller Shenzehn Composite fell more than 7 percent.