Who suffers most if China slumps?

Worries are mounting that China, which accounted for a third of global GDP growth in 2017, could now become a drag on the global economy.

931-shanghao-634

Last year, China grew by just 6.6% the slowest pace since 1990. In 2017, growth reached 6.8%. The news has compounded worries that China, which accounted for a third of global GDP growth in 2017, could now become a drag on the global economy.

The deceleration was "at least partly self-inflicted", say Gabriel Wildau and Emily Feng in the Financial Times. Beijing has been struggling to wean the economy "off its reliance on debt-fuelled stimulus".

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

So there has been a sharp slowdown in infrastructure spending and reduced access to credit for privately owned companies. In short, "the roots of the current downturn can be found in the response to the last one", says Nathaniel Taplin in The Wall Street Journal. Not only is domestic investment falling, but the global outlook isn't encouraging either. Last December, export growthfell to 0.2% year-on-year in renminbi terms, says

Chen Long of Gavekal Research, and import growth declined by 3.1%. "It will surprise few that exports to the US were down." But exports to Europe and Japan also slowed. This indicates "softening global demand". The government will be wary of a major stimulus as the overall debt burden is now high. Chinese growth islikely to weaken further in 2019, says Neil Shearing of Capital Economics.

Advertisement
Advertisement - Article continues below

That's bad news primarily for Asian economies with close trade links to China, such as Taiwan, Vietnam and Malaysia. It's also worse news for Europe than America. Chinese direct investment in Europe is worth six times the amount allocated to the US ($12bn versus $2bn in the first half of 2018), says Leonid Bershidsky on Bloomberg. Last year, the firms in Germany's DAX index derived 15% of their revenue from China. If China slows sharply, Europe will bear the brunt.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/504252/brace-yourself-the-global-economy-might-be-healthier-than-it-looks
Economy

Brace yourself – the global economy might be healthier than it looks

Investors have been worried about a global recession since the start of the year. But the latest indicators suggest things might not be so bad. John S…
2 Apr 2019
Visit/501578/the-charts-that-matter-the-powell-put-is-in-place
Economy

The charts that matter: the Powell put is in place

The Federal Reserve has done not so much a U-turn as a handbrake turn on monetary policy this week. John Stepek looks at how that’s affected the globa…
2 Feb 2019
Visit/investments/stockmarkets/china&
China's stockmarkets

Will this year bring any cheer for China's markets?

China's double-digit growth rates of previous decades are long gone. Will the weakness continue?
17 Jan 2020

Most Popular

Visit/520525/currency-corner-how-high-can-the-pound-go-against-the-euro-in-2020
Currencies

Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020
Visit/investments/property/house-prices/600638/uk-house-prices-may-be-heading-for-a-boris-bounce
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600636/class-acts-going-cheap-buy-into-europes-best
Share tips

Class acts going cheap: buy into Europe’s best bargains

Value investing appears to be making a comeback, while shares on this side of the Atlantic are more appealing on metrics such as price/earnings ratios…
16 Jan 2020
Visit/investments/stocks-and-shares/share-tips/600641/share-tips-of-the-week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
17 Jan 2020