What's distracting China: Economy or market sell-off?

Economists observe that the slowdown in the economy itself is more serious for China than the latest market crash. The Shanghai Composite Stock Index lost 40 percent from its peak level in June, while the US stock markets dropped over 10 percent during the same turmoil across the global markets and rebounded by more than half of the way.

This is indicating that market sell-off is not the real problem for China, but its domestic challenges are more concerns for the world's second-largest economy. So, the real problem is nothing, but its economy itself for China.

The US economy is doing good if not well. The third quarter GDP growth forecasts have been, though marginally, revised upwards. The GDP forecast for Q3 is pegged at 2.8percent. The US markets are likely to stage a recovery after the latest correction. Whereas, China is suffering from its economy slowdown.

Adding to this, the recent devaluation of its currency Yuan is also giving jitters to the global markets including China's equities. Moreover, latest discouraging performance of manufacturing sector is really a big concern for the Chinese economy. And there was a drop in July exports as well. 

During the first seven months of the year registered drop in power generation and cement production. The power generation and cement production levels indicate the domestic economic activity and any decline in these segments is a clear indication that economy is slowing down. 

Laborers working industrial units in Beijing and Shenzhen are feeling the heat of economic crisis in the domestic market. Many of the workers are leaving city and going back their hometown. The entire world is focusing on stock market crash in August, but the plight of laborers and drop in manufacturing production levels get the least attention. But, this is the real problem for the world's second largest country, observe analysts.

The worsening situation by the day is raising doubts about the strength of Beijing to bring back the disastrous economy on the right track.

Another indication about the worsening domestic market is recycling activity. One could easily sense the economic activity just going by the demand for recycle material. Chinese recyclers are suffering from low business activity for the past four years as there's no demand for raw materials.

Economists say that one need not worry about stock markets as the main concern is economy itself. Chinese stock markets doubled during the past 12 months until 12 June. Then it lost one-third of value in the latest market crash by eroding $3trillion in market capitalization. Later it rebounded, by the help of Government or whatever the reason, by 12 percent. So, as far as stock markets are concerned, there's nothing much to worry.

The real problem is economy itself. China recorded high growth based on investment and exports. These two sectors are fast losing stream impacting the economy slow down more than the anticipated.  

Cement and steel sectors are operating at bottom level capacities. Exports growth is less than two percent. On the other hand, credit-based expansion resulted in overcapacity across the Chinese industry. High capacities and bottom level operational activity will impact significantly the financial performance of companies.