Shares in London and elsewhere in Europe rebounded at the start of trading, despite another night of steep falls for the Chinese stock market.The FTSE 100 rose 1.6% to 5,994.11, while Germany`s Dax and Paris Cac were both up about 1.4%.The gains came after Chinese stocks continued their run of big losses.The main Shanghai Composite index closed down 7.6% at 2,964.97 points. Japan also saw more sharp falls and Tokyo`s Nikkei index was 4% lower.
The global sell-off is being driven by fears that China`s slowing growth means less business for everyone else.China`s booming economy of the last 30 years has seen the country suck in supplies of raw materials for manufacturing and, increasingly, manufactured and luxury goods from other countries.
After decades of rapid growth, China is running out of steam. Investors globally are worried that firms and countries that rely on high demand from China - the world`s second-largest economy and the second-largest importer of both goods and commercial services - will be affected.But although the slowdown in the Chinese economy will have a bearing on Chinese firms` profitability, many view the stock market as grossly inflated.The main Shanghai index more than doubled in the 12 months up to mid-June.Weak manufacturing figures from China prompted a massive fall in shares on Friday, which was followed by another, the biggest in eight years on Monday, triggering a mass sell-off across the globe.Capital Economics said investors had been "overreacting about economic risks in China", arguing that "the collapse of the equity bubble tells us next to nothing about the state of China`s economy".The government, which has both money and the power to influence what are not free markets, has taken steps to lower the value of the yuan in order to boost demand for Chinese goods overseas. It has also intervened in the stock market to support values.Although very few Chinese people own shares - only about 2% of the population - they are extremely active on its stock market. They are responsible for the majority of daily turnover and the government is trying to ameliorate the impact of the trading rout on those individuals.Many bought shares with borrowed money, and as those investors fall in value, they are now selling investments to pay back.
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