The
Chinese government reported its lowest quarterly GDP growth in three years,
with second-quarter GDP growth at an annual rate of 7.6 percent. This
deceleration in China can have a severe impact on global gross domestic
product growth, as the nation is now the single largest contributor to
global economic growth as also stated by the International Monetary Fund. The
nation's contribution to global economic growth over 2010-13 is expected to rise
to 31 percent, up from just 8 percent in the 1980s.
“China
can transmit real shocks widely,” the International Monetary Fund said in a
recent report, “whether these originate domestically or elsewhere.”
The blow is being felt all across China. Car dealerships are
bursting with unsold automobiles, warehouses are groaning under mountains of
unsold goods, and millions of apartments remain vacant. To liquidate
inventories, companies are engaging in vicious price cutting wars. The latest
data shows that export orders are falling at their fastest pace since the 2008
crisis. Cutbacks in import orders by Chinese firms are now spreading gloom to
three continents.
One of the most important linkages of the Chinese economy to the
rest of the world is via trade, and it is here that the slowdown is expressed
most clearly. The latest figures show that the boost in exports almost ceased
in July, rising by only 1 percent, well below market forecasts and the 11.3
percent increase in June.
A
breakdown of the export figures reveals that, far from providing a source of
stimulus to the rest of the world, the Chinese economy is being dragged down by
the recessionary currents in all of the major capitalist centers. Exports from
China to the euro zone have shrunk by 16 percent over the past year. Exports to
Italy, for example, plunged by 36 percent.
The lower Chinese
demand can give the hardest blow to Asian economies that supply industrial
components to its vast manufacturing industry, as well as exporters of oil,
iron ore and other commodities such as Australia and African nations. Chinese
imports of steel, copper and oil have declined by volume over a year ago.
Major exporters of raw materials to China, in particular
Australia and Brazil, will also be impacted. An official of the Brazilian iron
ore exporter Vale declared that the China slowdown meant the “golden years”
were gone. This company, which shipped about 44 percent of its iron ore and
pellets to Chinese steel producers in the second quarter of this year, declared
a 59 percent fall in its profits.
Economies
such as Australia, which sends a quarter of its exports to China, most of which
are iron ore, have felt the slowdown acutely. Germany, Europe’s
export engine, which sells much of its machine tools and equipment to China, is
experiencing a drop in GDP growth.
Even
while the U.S. continues to bear the aftermath of the European crisis, this
slowdown creates yet another weight on the American economy. It's not that
China is a major consumer of U.S. goods; though U.S. exports to China have
grown more than six-fold since 2000, shipments to China still only account for
around 7 percent of total U.S. exports. Rather, China's consumption of goods
like raw materials from around the world promotes growth in the global economy.
When that consumption slows, the effects can easily find their way back to U.S.
shores.
There
is a knock-on effect that will affect places like Korea, Latin America, and
Brazil. In particular, when all of those affected countries suddenly find it
harder to buy U.S. goods, it will help to drag down an already-anemic recovery.
By Mahvish Hamid
Section 1
B.Com.(hons.) Ist Year
First Position
