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.

By Marina Gerner
published

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China hasn't grown this slowly since 1990
(Image credit: zhaojiankang)

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".

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

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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.

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.

Marina Gerner

Marina has a PhD in globalisation and the media from the London School of Economics, where she worked as a teaching assistant on the MSc Global Media. In 2014 she was invited to be a visiting scholar at Columbia University's sociology department in New York.

She has written for the Economists’ Intelligent Life magazine, the Financial Times, the Times Literary Supplement, and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany. She is trilingual and lives in London. She writes features and is the markets editor at MoneyWeek..

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