Rather like a mother with a new baby, the stock market always has something to worry about. A couple of years ago it was the collapse of the eurozone. Then it was the risk of rampant inflation as central banks kept printing money, followed by another panic over what might happen once the banks stopped printing money. And now? It is the state of the Chinese economy.
This week, we learned that China’s growth rate had dropped to the lowest level since 1999. Right on cue, the markets started to fall, and commodities took a hammering. There was lots of earnest talk about a Chinese slowdown killing off the recovery in the global economy. But in reality, what happens in China does not matter very much.
It matters to the Chinese, of course. But remember that the country is predominantly a massive exporter of consumer goods. If its economy does crash, there is no reason why it should impact on the rest of the world very much at all.
The figures out of China this week were hardly terrible. The economy grew at 7.7% in the final quarter of 2013, from 7.8% in the third quarter. In most of the world, and certainly here in Europe, figures that strong would be seen as little short of a miracle.
It is only by the turbo-charged standards of recent years – when China has regularly expanded at 10% or more in a year – that they look disappointing. But when an economy goes through rapid industrialisation, it would be very surprising if there were not a few booms and busts along the way – even a Chinese version of Gordon Brown would not be able to abolish those.
The bigger question, and one that few people are asking, is this: if China does crash, does it matter to the rest of us? True, over the last decade, the Chinese industrial revolution has been the driver of the global economy.
The ocean lanes are filled with giant container ships laden down with the cheap products its factories send to the rest of the world. Africa has been turned into one giant mine for its growing industries. And workers thrown out of jobs by Chinese competition have struggled to find equally well-paid work.
Yet that does not mean a slowdown in China will blow up the global economy. China accounts for 13.2% of global GDP, according to World Bank figures. But it is mainly a big exporter, not a big consumer of the rest of the world’s goods – not yet anyway.
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Take Britain. Only 0.7% of British GDP is made up of sales to China – apart from Land Rovers, we don’t make many things the Chinese want. China doesn’t matter much to most other developed economies either.
Just 0.9% of the US’s GDP is generated from sales to China. Even for Japan, which is a lot closer, the figure is only 2.4%. It matters a lot to Australia – 5.8% of its GDP depends on China, nearly all of it raw materials – but to no one else.
So what happens if China slows, or even goes into a full-scale recession? Naturally, it matters for the Chinese. Its industrial revolution is still at a relatively early stage, and may not withstand a collapse.
Mass unemployment in cities that have been thrown up overnight could easily lead to political turmoil. There is not much of a welfare system to help people who lose their jobs. So China’s economy will be hit hard. But it won’t stop exporting. If times get tougher, its companies will be just as anxious to fill their order books – probably even more so.
The pace of exports won’t slow, and the supply chains that companies now depend on will not be affected. Imports, of course, will be hit hard – but only places such as Australia and parts of Africa that ship the raw materials that feed China’s factories will suffer.
There is an interesting parallel with the Japanese crash of the early 1990s. Two decades later, Japan itself hasn’t fully recovered. But it did not make much difference to the rest of us, for the same reason – Japan was an exporter rather than an importer.
The 1990s, and the first part of the 2000s, were a very strong period for the rest of the global economy. The fact that Japan – the world’s third-largest economy – was in permanent recession didn’t make much difference.
In fairness, there would be financial ramifications to a Chinese crash. Its money might be pulled out of the capital markets – and there is a lot of that. Some banks might be in trouble if all that cash suddenly headed home.
Trade and budget deficits might not be so easy to finance. But there’s no reason to suppose the real economy would slow. The markets can worry about a China crash if they want to. But even if there is a hard landing, it won’t matter much to anyone else.