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
China hasn't grown this slowly since 1990

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

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.

Recommended

Inflation looks likely to take off this year – but there’s one key risk
Inflation

Inflation looks likely to take off this year – but there’s one key risk

With the world’s governments spending money hand over fist, inflation looks certain to take off at some point. But China could change all that. John S…
19 Jan 2021
It's not just the UK – we're seeing pandemic housing booms across the globe
Property

It's not just the UK – we're seeing pandemic housing booms across the globe

Soaring house prices aren’t just a UK thing, they’re a worldwide phenomenon. And it’s no coincidence – the underlying cause is much the same. John Ste…
18 Jan 2021
A beginner’s guide to inflation – everything you need to know
Inflation

A beginner’s guide to inflation – everything you need to know

One of the most frequently mentioned topics in the news these days is inflation. But what exactly is inflation and how does it affect the economy and …
18 Jan 2021
The charts that matter: bubbling over?
Global Economy

The charts that matter: bubbling over?

As markets get decidedly bubbly, John Stepek looks at the action in the charts that matter most to the global economy.
16 Jan 2021

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
The best investment trusts to buy for 2021
Investment trusts

The best investment trusts to buy for 2021

Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment…
19 Jan 2021