When the Chinese locomotive stops, all of Asia, if not all of the world economy, slows down. In the third quarter, growth in the world’s second-largest economy slowed to 4.9% year-on-year, and several indicators deteriorated in October, suggesting that the slowdown is likely to continue. “The level of activity had not been so low since the end of the 1990s, warns Nicholas Spiro, managing partner of the consulting firm Lauressa Advisory, located in London. It is a shock for the world economy, which goes unnoticed next to other concerns of the moment such as the Covid-19 pandemic or inflation. “
a « choc » all the more worrying since it is not only linked to post-Covid disruptions (increase in raw materials, shortages, etc.). “Weak domestic demand is a much more important factor in the slowdown in Chinese industry”, estimates the Oxford Economics firm in a note published at the end of October.
The causes of the current slowdown are profound. By giving priority to deleveraging a year ago, Beijing has slowed down investment by local authorities and tightened the conditions for granting loans by banks. The real estate sector, which indirectly contributes 30% of the country’s gross domestic product (GDP), is in the midst of a crisis, as illustrated by the setbacks of the developer Evergrande, affected by a debt of around 260 billion d ‘euros.
“Decline in productivity and aging of the population”
“In the very long term, China suffers from a drop in productivity and an aging population”, adds Alicia Garcia Herrero, chief economist at Natixis bank in Asia-Pacific. The International Monetary Fund (IMF) has lowered its growth forecast to 8% instead of 8.1% for 2022, while Beijing is counting on a 6% increase in GDP. Geoffrey Okamoto, the IMF’s deputy managing director, draws this observation, tinged with pessimism, in a recent blog post: “The news, which is not so good, is that the momentum is weakening” in China.
“The world has become so used to this high pace that they have forgotten the benefits they derive from it”, Nicholas Spiro, Managing Partner of the consultancy firm Lauressa Advisory
In fact, this dynamic has fueled global growth for decades. “The world has become so used to this high rate that it has forgotten the benefits it derives from it”, says Mr Spiro. According to figures compiled by HSBC bank and data provider CEIC, a one percentage point increase in GDP in China translates into a 0.7 point gain in South Korea, while the same increase in Europe has a positive impact of only 0.05 point. The other big beneficiaries are Thailand and Taiwan, according to HSBC calculations.
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The specter of a Chinese slowdown hangs over the global economy