China’s economic slowdown has sent shockwaves around the world

The latest data show that China’s economy is losing momentum for sustainable growth.

“Warns Nicholas Spiro, managing partner at London-based Laurisa Consulting. China’s economic activity has not been this low since the 1990s, and the global economy will inevitably suffer.

Most worryingly, Oxford Economics said in a report released at the end of October, the shock is not only related to post-pandemic raw material prices and scarcity: “Weak domestic demand is a more important factor in China’s industrial slowdown.”

The causes of the current slowdown run deep. A year ago, Beijing slowed local investment and tightened bank lending by prioritizing deleveraging. That has plunged a property sector that indirectly contributes 30 per cent of the country’s gross domestic product into crisis, as illustrated by the setback for developer Evergrande, which is burdened by some €260bn of debt.

“In the long term, China is suffering from a combination of declining productivity and an aging population,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis Bank. The INTERNATIONAL Monetary Fund lowered its forecast for China’s growth in 2022, while Beijing kept it at 6 percent. Jeffrey Okamoto, deputy managing director of the IMF, said gloomily recently: “The bad news is that China’s growth momentum is weakening.”

In fact, China’s sustained economic growth has driven global growth for decades, and “the world has gotten so used to this high pace of growth that it has forgotten the benefits,” Spiro said. According to HSBC, a 1 percentage point increase in China’s GDP translates into a 0.7 percentage point boost for South Korea, followed by Thailand and Taiwan, with a positive impact of just 0.05 percentage points for Europe.

Asian countries will be the first to be hit by China’s slowdown because their supply chains are closely linked. In 2020, ASEAN became China’s major trading partner with a trade volume of us $730 billion.

Twenty percent of Vietnam’s exports depend on China, and as much as a third of Taiwan’s. In early October, Philippine Central bank Governor Benjamin Diocono warned that a slowdown in China could hurt the country’s exports and tourism: 8.3 million Chinese vacation in the Philippines each year. According to the Asian Development Bank, a slowdown in China’s economy will have a much bigger impact on Asia and emerging powers than on developed countries.