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Here's where China effect is biggest: Hormats

Hormats: No direct econ effect from Chinese stock decline

Renewed fears about a slowdown in China struck fear into global markets this week. While some traders fret about Chinese stock markets, changes in the country's economy will continue to have a strong effect on commodities, said Bob Hormats, vice chairman of consulting firm Kissinger Associates.

Stocks around the globe fell broadly Monday, the first trading day of 2016, after a nearly 7 percent drop in Chinese stocks triggered a trading halt. While markets recovered slightly Tuesday, concerns linger about the health of the Chinese economy.

Hormats, a former Goldman Sachs vice chairman, said Tuesday that Beijing's ability to implement "market-oriented reforms" is the "key" in China. As the country's economy transitions, its diminishing status as a "large marginal buyer" of commodities could continue to drag on emerging market economies, he contended.

"They haven't been that for a while. They won't be that in the future so commodity prices are likely to remain relatively weak," he told CNBC's "Closing Bell."

A trader works on the floor of the New York Stock Exchange.
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The health of China's economy partly came into question this week due to disappointing manufacturing data. Hormats acknowledged that manufacturing investment will likely slow, and a transition to a consumer-led economy will continue to prove crucial.

"They have to rely more on services, which are actually doing quite well in China," he said.

Hormats also noted that, while sharp drops in stocks look alarming, weakness in equities may be less painful in China than in the United States because rates of stock ownership are lower.