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Economists are trying to figure out how China's economic slowdown could affect the rest of the world |
There is a saying about the world economy.
The United States sneezes and the whole world is sick. So what if China, which is not the US but has the second largest economy, gets sick? What will happen?
As mentioned, China is the second largest economy in the world. It is a large country with 1.4 billion people. The recent decline in economic growth, It is facing many problems such as the high number of youth unemployment and the unstable real estate market.
Now, the chairman of China's heavily indebted real estate giant, Evergrande, has been placed under police surveillance and the company's shares have been suspended from trading on the stock market.
For Beijing, these big problems are increasing one after another and it is becoming a headache.
Analysts say they are worrying too much about the global recession.
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However, for those who work in big businesses such as international corporations, whether they have a direct relationship with China or not He said that he is likely to face more or less impacts.
Ultimately, it depends on what your situation is.
Winners and losers
Deborah Elms, executive director of the Singapore-based Asia Trade Center, questions whether, for example, if people in China cut back on eating out for lunch, it could hurt the global economy.
The answer is not as bad as it seems. But businesses that depend on the consumption of the Chinese public may be affected, he said.
Large companies operating around the world, such as Apple, Volkswagen and Burberry are getting a lot of revenue from the Chinese market. If there is a drop in
demand, it will hurt them too. The consequences will be felt by thousands of businesses that import goods and company employees around the world who depend on these companies.
It is said that more than 1/3 of the world's economic development is not independent of China, so the consequences of China's economic decline may extend beyond China's borders to other regions of the world.
Just last month, US credit rating agency Fitch downgraded its forecasts for 2024, saying that China's economic slowdown is casting a dark shadow over global economic growth prospects.
However, some economists claim that China is the engine room of world economic development, which is an exaggeration.
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China's economy accounts for more than 1/3 of the world's economic growth
George Magnus, an economist at the University of Oxford's China Center, says that if you look at the math, China has 40 percent of the world's economic growth. But who benefits from that development? China is running a large trade surplus. They export much more than they import.
Therefore, China's development, He said that the lack of progress is more related to China than the whole world.
China is spending less on goods and services. As housing construction has decreased, the demand for necessary raw materials and other materials has decreased. Last August, China's goods imports fell by 9 percent, even compared to the previous year when the zero-covid policy was not lifted, said Roland Rajah, director of the Indo-Pacific Development Center at the Sydney-based Lowy Institute.
That's why Australia, which exports such items on a large scale, He said it could hurt Brazil and other African countries.
Due to declining demand in China, commodity prices are still falling. From the point of view of Western consumers, it is satisfying because interest rates are not rising, but commodity prices are falling.
Roland Rajah said this is good news for businesses and people who are struggling due to inflation.
In the short term, China's economic slowdown may benefit ordinary buyers and consumers. But for people in developing countries, there may be long-term questions. Over the past 10 years, China has invested more than $1 trillion in infrastructure needed for its orbital and regional projects. More than 150 countries have roads, Airports and seaports; They received financial and technical assistance from China to build the bridges. According to Roland Rajah, as China's economy tightens, Chinese support for these projects may also be affected.
Now, big Chinese companies and banks no longer have the power to pave the way for money abroad as before, he said.
China on the world stage
Although China's foreign investment may decrease, it is not yet possible to say how much the state of China's domestic economy will affect their foreign policy.
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Some say that as China becomes weaker, it may try to mend the rift between the US and the US.
China's exports to the US fell 25 percent in the first six months of this year, partly due to US trade tightening. US Commerce Secretary Gina Raimondo once said that China is an impossible country for some American companies to invest in.
Despite this, there is no sign of the Chinese side softening its approach. Beijing has only responded by further tightening the restrictions on them.
It has also maintained good relations with the governments of Vladimir Putin in Russia and Bashar al-Assad in Syria, which have been sanctioned by the world for often accusing the West of acting in a Cold War spirit.
On the other hand, representatives from the US and the EU are coming to China every month to hold trade talks that will be mutually beneficial. To be sure, few people know the difference between China's rhetoric and China's policy.
Some of the sharp-sighted political analysts in Washington are among those who are making various predictions considering this uncertain situation.
They said that China's economic decline could have an impact on the way Taiwan is treated. Although Taiwan is a self-governing island and governed by its own government, Beijing claims that it is only their territory.
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US Secretary of State Anthony Blinking and Chinese President Xi Jinping met earlier this year |
Earlier this month, Republican Rep. Mike Gallagher, the chairman of the US House Special Committee on China, said China's internal problems have made it harder to predict what President Xi Jinping might do. He said that he might do some stupid things about Taiwan.
Roland Rajah did not accept this proposal. He said the Communist Party's response to this could have consequences as it became clear that China's surprising economic growth had come to an end.
Similarly, many, including US President Joe Biden, do not accept it. When President Biden was asked how likely it was, he said that Mr. Xi would no longer be concerned with his country's economic problems.
She didn't think it would happen until China annexed Taiwan. In fact, it may even be the other way around. Mr. Biden said he did not think China would be in the same situation as it was before.
Expect the unexpected
There is something to be learned in history lessons.
This is to expect the unexpected. Deborah Elms says that before 2008, few people would have predicted that Las Vegas's mortgage problems would send shockwaves through the global economy. With echoes of 2008, some analysts fear a financial contagion. Among those concerns are speculation that the Chinese real estate crisis could collapse the Chinese economy and lead to a global financial crisis.
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| In August, China's exports fell for the 4th consecutive month |
The current situation in China is comparable to the global economic downturn that began in the United States in 2008 after the collapse of Lehman Brothers, a major Wall Street financial investment company. But economist George Magnus says it's not entirely the same.
In these cases, he said, the collapse of Lehman Brothers will not happen. China will not let its big banks collapse; Also, compared to regional banks that have collapsed in the US, they are more resilient, he said.
Deborah Elms also accepted this proposal. The way China's real estate market and their financial infrastructure operate is not the same as in the United States, where people with low credit ratings lend money to buy a home. And the Chinese financial system is not able to dominate the world as it did in 2008 in the United States, he said.
When the whole world is connected, one place's development declines, He said that when it does not work, it can affect the rest of the place, so unexpected difficulties can be encountered.
This may happen, but we cannot say that we will have to experience something like 2008 again. What should be noted is the local problem, Deborah Elms says that one concern can have repercussions elsewhere, and unexpected events can occur.
