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China’s economy was meant to drive a third of global economic growth this year, so its dramatic slowdown in recent months is sounding alarm bells across the world. Asian economies are taking the biggest hit to their trade so far, along with countries in Africa. Japan reported its first drop in exports in more than two years in July after China cut back on purchases of cars and chips.
But as the world’s second-largest economy, a prolonged slowdown in China will hurt, rather than help, the rest of the world. An analysis from the International Monetary Fund shows how much is at stake: when China’s growth rate rises by 1 percentage point, global expansion is boosted by about 0.3 percentage points.
The value of Chinese imports has fallen for nine of the last 10 months as demand retreats from the record highs set during the pandemic. The value of shipments from Africa, Asia and North America were all lower in July than they were a year ago. Africa and Asia have been the hardest hit, with the value of imports down more than 14% in the first seven months this year. (Image: Bloomberg)
So far, the actual volume of commodities such as iron or copper ore sent to China has held up. But if the slowdown continues, shipments could be impacted, which would affect miners in Australia, South America and elsewhere around the world. (Image: Bloomberg)
The price of Chinese goods at US docks has fallen every month this year and that is likely to continue until factory prices in China return to positive territory. Economists at Wells Fargo & Co. estimate that a ‘hard landing’ in China — which they define as a 12.5% divergence from its trend growth — would cut the baseline forecast for US consumer inflation in 2025 by 0.7 percentage points to 1.4%. (Image: Bloomberg)
Chinese consumers are spending more on services, like travel and tourism, than on goods — but they’re not yet venturing overseas in large numbers. The pandemic and weak economy have curbed incomes in China, while the years-long housing market slump means homeowners feel less wealthy than before. That suggests it may take a long time for overseas travel to rebound to the levels they were at before the pandemic, hitting tourism-dependent nations in Southeast Asia such as Thailand. (Image: Bloomberg)
China’s economic woes have pushed the currency down over 5% against the dollar this year, with the yuan close to breaching the 7.3 mark this month. The central bank has escalated its defense of the yuan through various measures including its daily currency fixings. The depreciation in the offshore yuan is having a greater impact in Asia, Latin America and the Central and Eastern Europe bloc, with the correlation of the Chinese currency to some others rising. (Image: Bloomberg)
China’s interest rate cuts this year have reduced the appeal of its bonds to foreign investors, who have cut their exposure to the market and are looking for alternatives in the rest of the region. (Image: Bloomberg)
Overseas holdings of Chinese sovereign notes are at the lowest share of the total market since 2019. Global funds had turned more bullish on the local currency bonds of South Korea and Indonesia as central banks there near the end of their interest-rate hiking cycles. (Image: Bloomberg)
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