International

Ripple Effect On Payments Industry From China’s Stock Rout?

No matter what the Chinese government does to calm the stock markets, it seems gravity is winning out. Stocks continued to slide Wednesday (July 8), despite some impressive measures by the government that included establishing a $19 billion fund geared toward buying shares in smaller and midsized Chinese enterprises.

Of course, the stock market is as unpredictable as just about anything in this world. Maybe the latest government moves will take root and mollify skittish investors. But as of this when this article was written late Wednesday evening, equities were off at least $3.4 trillion from peaks.

And that $3.4 trillion is the key because it impacts investor sentiment. And investors are consumers. And consumers spend, which of course impacts the payments industry.

As has been the case in so many stock market rallies around the world, investors in China have scrambled amid markets that seemed only to rise inexorably higher, dedicating their savings — and then some, because many borrowed in order to buy even more stocks — only to be caught flatfooted in a downturn.

Many stocks remain frozen. They are simply not trading because rules mandate that equities simply be taken out of action if they slide by more than 10 percent in a session, and this means anguish for those who want to sell (and also for a few hardy souls who may want to buy). Other companies have gone to the exchange authorities and asked for voluntary suspension from trading.

The real impact may have yet to be felt, and if this market rout continues for any real length of time, there will indeed be impact, far beyond China’s borders. After all, Chinese consumers are huge drivers of spending across property, luxury goods and tourism. These last two areas, and the payment platforms that depend on them, ranging from credit cards to electronic wallets, could all take a hit. Chinese tourists, for example, spend hundreds of billions of dollars in major U.S. cities and beyond as they travel internationally.

It’s not hard to imagine that Chinese consumers may in fact be scared away from spending, for a while at least, and the economy at home, which has been slowing, may slow quite a bit more and induce a nation of savers to pull even harder on their purse strings. That would have a ripple effect that could make its way to POS terminals and gift cards, not to mention bank lending for much larger transactions.

Stay tuned.

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