China accounted for two-thirdsof gl

China accounted for two-thirds
of global oil-demand growth
from 2003 to 2012
$10
8
6
4
2
2006 2008 2010 2012 2014
$10.4
trillion
CHINA’S GROWING GDP, IN TRILLIONS
WORLD’S LARGEST
FOREIGN CURRENCY
RESERVE HOLDERS
China’s expanding
global influence
CHINA’S SHARE OF WORLD
CONSUMPTION IN 2014
42 Time August 31, 2015
is serious risk that social unrest will shake
the entire system. Then China’s dominance
could prove short-lived.
But in the near term, China’s economy
will grow, extending its influence
and challenging the established international
order. That is already happening.
U.S. officials seem to forget that China has
become too big and too influential to take
Washington seriously when they either
approve or criticize China’s domestic politics.
Beijing has demonstrated an ability
to build new alliances that challenge the
absolute dominance of Western-led institutions
like the IMF and World Bank,
which were created after World War II to
ensure that the U.S. and its allies set the
rules of global commerce and the terms
of international engagement. Even Britain
has recognized both the inevitability
of China’s rise and its potential value and
is signing on to some of China’s projects.
U.S.-Chinese rivalry—and some level
of conflict—is inevitable. Future U.S.
Presidents will have limited power to
change China or constrain its leaders’ actions
abroad, but the approach Washing-
Huge losses in the Chinese stock market have shaken investors’ confidence
ton adopts can help determine whether
the China decade is a period of healthy
competition—or one of real danger.
Yet as dangerous as a strong China
might seem, a weak and unstable China
might be the biggest threat of all, because
vulnerability will make Beijing that
much more erratic, creating uncertainty
in the new heart of the global economy.
The China decade will offer a challenge.
An unstable China might well prove a
catastrophe.
You aren’t a currency
trader. You don’t play in
Shanghai’s boom-and-bust
stock market. (It was only
beginning to open to foreign
investors when the crash
hit.) But if you have some
money in a 401(k) or an IRA,
you have a stake in the news
coming out of China, even if
you hardly think of yourself
as a global investor.
The China bet in your mutual
funds. If your portfolio includes
an international-stock fund,
it likely holds some Chinese
companies that list shares
on the Hong Kong or New
York exchanges. For example,
Vanguard Total International
Stock Index Fund, the biggest
foreign-stock fund, holds less
a bit than 5% of its assets in
China. At least as important
are such funds’ holdings in
countries like Brazil that sell a
lot of raw materials. As China’s
resource-hungry manufacturing
economy slows, “the No. 1
thing getting shellacked is
commodities,” says Robert
Johnson, director of economic
analysis at Morningstar. That
has hurt commodity-producing
countries.
Ripple effects close to
home. A significant chunk
of U.S. investments are
closely linked to China. About
10% of the S&P 500—the
benchmark followed by most
fund managers—is in energy
or basic-materials stocks,
and those are down sharply
this year.
More broadly, China’s
surprise move to devalue
its currency “reinforced
the perspective that all
is not well in the Chinese
economy,” says Harry Hartford,
president of Causeway Capital
Management. China may
be slowing even faster than
investors thought. American
multinationals hoping to sell
to a rising Chinese consumer,
particularly automakers, report
that sales are slipping.
The smart move: Stay
diversified. As big as the
events in China may feel right
now, that doesn’t mean you
have to act. “There’s very
little evidence that individual
investors are great at timing
stocks,” says Research
Affiliates chief investment
officer Chris Brightman. (Don’t
feel bad: pros have a lousy
record too.)
If you are tempted to
bail out of an international
fund right now, bear in mind
that U.S. stocks are hardly
a haven. Looking at prices
compared with the past 10
years of earnings, the stocks
on the S&P 500 are relatively
expensive. On the one hand,
bad news about China might
be the thing that breaks the
bull market’s so-far optimistic
psychology. Or maybe the
market decides that slower
global growth will continue
to hold down interest rates,
which could support high equity
valuations for a while longer.
Instead of trying to guess,
make sure you have a portfolio
that can handle shocks. Hold
many different kinds of stocks,
along with enough in bonds
and cash to get you through the
bad years. China just shows
that the markets are full of
surprising risks—and they can
come at you from the other side
of the globe.
Regnier is an assistant
managing editor at Money
How China’s economic turmoil affects your investments
FINANCE
By Pat Regnier
THOMAS DWORZAK—MAGNUM FOR TIME
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