DAX index suffers plunge over Asia fears

Germany's most important stock market index continued to suffer the effects of plunging confidence in Asia on Monday, losing around four percent of its value after a sharp fall in early-morning trading.

DAX index suffers plunge over Asia fears
An investor watches electronic stock information boards in Shanghai. Photo: DPA

It is the first time the stock market index has fallen below the psychologically-important 10,000 points level since January 2015 (1,000 points represents the level of the index in 1987) and the biggest single-day drop since 2007.

The lowest point of the day came just before 2 pm as the losses to the DAX hit five percent compared with its value at close of trading on Friday, but the market rallied again by time of writing.

Market watchers noted that just as in China, the lion's share of 2015's increase in value on the index of 30 leading German companies had now been wiped out.

Germany vulnerable to China weakness

Germany is particularly vulnerable to a weakening economic outlook in China due to its huge export business with the world's second-largest economy.

Exports drove much of the German economy's 0.4 percent expansion in the second quarter of 2015, Bloomberg reported on Monday, meaning that falling confidence in China could push Germany back towards zero or negative growth.

That risk is all the greater after the Chinese government's August 11th decision to devalue the yuan, making German goods more expensive thanks to the strong euro.

Daimler and BMW shares had both lost almost four percent of their values by 3pm on Monday.

The Wall Street Journal reported on Monday that German companies including Volkswagen were already slowing production at their factories in China.

But as the eurozone and German consumers recover their confidence – and their appetite for German products – the impact on Germany's economy of China's speedbump may not be catastrophic.

Asia suffers big losses

The DAX's loss in value shadowed sharp falls in Asian markets that opened earlier on Monday.

Several Chinese indices fell by around eight percent in early trading – the Shanghai stock market's worst slump in eight years – while bourses in Hong Kong, Taiwan and Japan were also hit hard.

The Tokyo-based Nikkei index fell by 4.6 percent in morning trading to below 19,000 points – its lowest point in the last five months.

China struggles to contain fears

Market observers have been watching China anxiously for weeks as the country suffers an abrupt slowdown in economic growth.

China's economy expanded at its slowest rate in 25 years in the first half of 2015, although the roughly seven-percent figure was still beyond the dreams of recovering European nations stuck in the doldrums.

The latest loss of value comes in spite of massive Chinese government efforts in recent weeks to shore up markets in the country.

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China derides Copenhagen democracy meet as ‘political farce’

China on Tuesday blasted a democracy conference in Copenhagen attended by Taiwan's president and a Hong Kong activist alongside Danish government officials this week, qualifying it a "political farce".

China derides Copenhagen democracy meet as 'political farce'
Demonstrators gathered outside the Copenhagen Democracy Summit on Tuesday. Photo: Emil Helms/Ritzau Scanpix

The Copenhagen Democracy Summit was held Monday and Tuesday in the Danish capital and organised by the Alliance of Democracies, an organisation targeted by Beijing sanctions in March and founded by former NATO boss Anders Fogh Rasmussen.

In addition to Taiwan’s President Tsai Ing-wen and Hong Kong democracy activist Nathan Law, Danish Foreign Minister Jeppe Kofod also participated in the forum by video link, which Beijing said violated “the one-China principle.”

“This summit is a political farce,” the Chinese embassy in Denmark wrote in a statement published on Tuesday. “Inviting those who advocate Taiwan and Hong Kong ‘independence’ to the meeting violates the one-China principle and interferes in China’s internal affairs,” it said.

“Some hypocritical western politicians are good at meddling in other countries’ internal affairs and creating divisions and confrontation in the name of ‘democracy’ and ‘freedom’. They are bound to fail,” it added.

At the conference on Monday, Kofod said it was “deplorable” that Beijing had imposed sanctions on 10 European individuals and organisations in response to EU sanctions on Xinjiang officials over their actions against the Uyghur Muslim minority.

Like most countries, Denmark applies the one-China principle — under which Beijing bars other countries from having simultaneous diplomatic relations with Taipei — though it does maintain relations with Taiwan.

Cut off politically from the rest of China since the end of the Chinese Civil War in 1949, the territory is self-governing but is not recognised by
the United Nations.

Beijing considers Taiwan a rebel province that will one day return under its control, by force if necessary.

China’s sabre-rattling has increased considerably over the past year, with fighter jets and nuclear-capable bombers breaching Taiwan’s air defence zone on a near-daily basis.

“Our government is fully aware of the threats to regional security, and is actively enhancing our national defence capabilities to protect our
democracy,” Tsai told the conference in a video address on Monday. US President Joe Biden is expected to present his China strategy soon, as
calls mount for him to publicly commit to defending Taiwan militarily in the event of a Chinese attack.